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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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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. Nick Bloom & Mark Schankerman & John Van Reenen, 2013. "Identifying technology spillovers and product market rivalry," LSE Research Online Documents on Economics 46852, London School of Economics and Political Science, LSE Library.
  2. 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.
  3. 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.
  4. 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.
  5. James D. Adams, 2001. "Comparative Localization of Academic and Industrial Spillovers," NBER Working Papers 8292, National Bureau of Economic Research, Inc.
  6. Jaffe, Adam B & Trajtenberg, Manuel & Henderson, Rebecca, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 577-98, August.
  7. Esther Duflo & Emmanuel Saez, 2000. "Participation and Investment Decisions in a Retirement Plan: The Influence of Colleagues' Choices," NBER Working Papers 7735, National Bureau of Economic Research, Inc.
  8. David Card & Laura Giuliano, 2011. "Peer Effects and Multiple Equilibria in the Risky Behavior of Friends," NBER Working Papers 17088, National Bureau of Economic Research, Inc.
  9. Francis Bloch & Unal Zenginobuz, 2007. "The effect of spillovers on the provision of local public goods," Review of Economic Design, Springer, vol. 11(3), pages 199-216, November.
  10. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 531-42, July.
  11. Belhaj, Mohamed & Bramoullé, Yann & Deroïan, Frédéric, 2014. "Network games under strategic complementarities," Games and Economic Behavior, Elsevier, vol. 88(C), pages 310-319.
  12. 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.
  13. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  14. Timothy G. Conley & Christopher R. Udry, 2000. "Learning About a New Technology: Pineapple in Ghana," Working Papers 817, Economic Growth Center, Yale University, revised May 2004.
  15. Daiji Kawaguchi, 2002. "Peer Effects on Substance Use among American Teenagers," ISER Discussion Paper 0567, Institute of Social and Economic Research, Osaka University.
  16. 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.
  17. Patrick Bayer & Randi Hjalmarsson & David Pozen, 2007. "Building Criminal Capital behind Bars: Peer Effects in Juvenile Corrections," NBER Working Papers 12932, National Bureau of Economic Research, Inc.
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