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Strategic Interaction and Networks

  • Yann Bramoull?
  • Rachel Kranton
  • Martin D'Amours

Geography and social links shape economic interactions. In industries, schools, and markets, the entire network determines outcomes. This paper analyzes a large class of games and obtains a striking result. Equilibria depend on a single network measure: the lowest eigenvalue. This paper is the first to uncover the importance of the lowest eigenvalue to economic and social outcomes. It captures how much the network amplifies agents' actions. The paper combines new tools?potential games, optimization, and spectral graph theory?to solve for all Nash and stable equilibria and applies the results to R&D, crime, and the econometrics of peer effects.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 104 (2014)
Issue (Month): 3 (March)
Pages: 898-930

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Handle: RePEc:aea:aecrev:v:104:y:2014:i:3:p:898-930
Note: DOI: 10.1257/aer.104.3.898
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  1. Bloom, Nicholas & Schankerman, Mark & Van Reenen, John, 2005. "Identifying Technology Spillovers and Product Market Rivalry," CEPR Discussion Papers 4912, C.E.P.R. Discussion Papers.
  2. James D. Adams, 2002. "Comparative localization of academic and industrial spillovers," Journal of Economic Geography, Oxford University Press, vol. 2(3), pages 253-278, July.
  3. James E. Rauch & Alessandra Casella, 2003. "Overcoming Informational Barriers to International Resource Allocation: Prices and Ties," Economic Journal, Royal Economic Society, vol. 113(484), pages 21-42, January.
  4. Duflo, Esther & Saez, Emmanuel, 2002. "Participation and investment decisions in a retirement plan: the influence of colleagues' choices," Journal of Public Economics, Elsevier, vol. 85(1), pages 121-148, July.
  5. David Card & Laura Giuliano, 2013. "Peer Effects and Multiple Equilibria in the Risky Behavior of Friends," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1130-1149, October.
  6. Peter Kooreman & Adriaan R. Soetevent, 2007. "A discrete-choice model with social interactions: with an application to high school teen behavior," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(3), pages 599-624.
  7. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
  8. Bloch, Francis & Zenginobuz, Unal, 2004. "The Effect of Spillovers on the Provision of Local Public Goods," MPRA Paper 186, University Library of Munich, Germany, revised 05 Oct 2006.
  9. Belhaj, Mohamed & Bramoullé, Yann & Deroïan, Frédéric, 2014. "Network games under strategic complementarities," Games and Economic Behavior, Elsevier, vol. 88(C), pages 310-319.
  10. Trogdon, Justin G. & Nonnemaker, James & Pais, Joanne, 2008. "Peer effects in adolescent overweight," Journal of Health Economics, Elsevier, vol. 27(5), pages 1388-1399, September.
  11. Conley, T.G. & Udry, C.R., 2000. "Learning about a New Technology: Pineapple in Ghana," Papers 817, Yale - Economic Growth Center.
  12. Patrick Bayer & Randi Hjalmarsson & David Pozen, 2009. "Building Criminal Capital behind Bars: Peer Effects in Juvenile Corrections," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 105-147.
  13. Jaffe, A.B. & Trajtenberg, M., 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," Papers 14-92, Tel Aviv.
  14. Dirk Bergemann & Stephen Morris, 2009. "Robust Implementation in Direct Mechanisms," Levine's Working Paper Archive 814577000000000109, David K. Levine.
  15. Yann Bramoullé & Rachel Kranton & Martin D'Amours, 2010. "Strategic Interaction and Networks," Cahiers de recherche 1018, CIRPEE.
  16. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 531-542.
  17. Daiji Kawaguchi, 2004. "Peer effects on substance use among American teenagers," Journal of Population Economics, Springer;European Society for Population Economics, vol. 17(2), pages 351-367, 06.
  18. Alejandro Gaviria & Steven Raphael, 2001. "School-Based Peer Effects And Juvenile Behavior," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 257-268, May.
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