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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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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.104.3.898
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File URL: http://www.aeaweb.org/aer/ds/10403/20110085_ds.zip
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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. Rauch, J E & Casella, Alessandra, 2001. "Overcoming Informational Barriers to International Resource Allocation: Prices and Ties," University of California at San Diego, Economics Working Paper Series qt2k8626fr, Department of Economics, UC San Diego.
  2. Jaffe, A.B. & Trajtenberg, M., 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," Papers 14-92, Tel Aviv.
  3. Conley, T.G. & Udry, C.R., 2000. "Learning about a New Technology: Pineapple in Ghana," Papers 817, Yale - Economic Growth Center.
  4. 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.
  5. 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.
  6. Dirk Bergemann & Stephen Morris, 2009. "Robust Implementation in Direct Mechanisms," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1175-1204.
  7. Mohamed Belhaj & Yann Bramoullé & Frédéric Deroïan, 2012. "Network Games under Strategic Complementarities," Working Papers halshs-00793439, HAL.
  8. 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.
  9. Nick Bloom & Mark Schankerman & John Van Reenen, 2005. "Identifying technology spillovers and product market rivalry," STICERD - Economics of Industry Papers 40, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  10. Yann Bramoull? & Rachel Kranton & Martin D'Amours, 2014. "Strategic Interaction and Networks," American Economic Review, American Economic Association, vol. 104(3), pages 898-930, March.
  11. Soetevent, Adriaan R. & Kooreman, Peter, 2004. "A discrete choice model with social interactions; with an application to high school teen behavior," CCSO Working Papers 200401, University of Groningen, CCSO Centre for Economic Research.
  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. 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.
  14. 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.
  15. 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.
  16. Daiji Kawaguchi, 2002. "Peer Effects on Substance Use among American Teenagers," ISER Discussion Paper 0567, Institute of Social and Economic Research, Osaka University.
  17. 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.
  18. 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.
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