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Network Design under Local Complementarities

  • Mohamed Belhaj

    ()

    (Centrale Marseille, (Aix-Marseille School of Economics), CNRS and EHESS)

  • Sebastian Bervoets

    ()

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS and EHESS)

  • Frédéric Deroïan

    ()

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS and EHESS)

Registered author(s):

    We consider agents playing a linear network game with strategic complementarities. We analyse the problem of a policy maker who can change the structure of the network in order to increase the aggregate efforts of the individuals and/or the sum of their utilities, given that the number of links of the network has to remain fixed. We identify some link reallocations that guarantee an improvement of aggregate efforts and/or aggregate utilities. With this comparative statics exercise, we then prove that the networks maximising both aggregate outcomes (efforts and utilities) belong to the class of Nested-Split Graphs.

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    File URL: http://www.amse-aixmarseille.fr/sites/default/files/_dt/2012/wp_2013_-_nr_09.pdf
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    Paper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1309.

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    Length: 39 pages
    Date of creation: 12 Feb 2013
    Date of revision: 12 Feb 2013
    Handle: RePEc:aim:wpaimx:1309
    Contact details of provider: Web page: http://www.amse-aixmarseille.fr/en

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    1. Antoni Calvó-Armengol & Yves Zenou, 2004. "Social Networks And Crime Decisions: The Role Of Social Structure In Facilitating Delinquent Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(3), pages 939-958, 08.
    2. Mathias Dewatripont & Patrick Bolton, 1996. "The firm as a communication network," ULB Institutional Repository 2013/9597, ULB -- Universite Libre de Bruxelles.
    3. Hendricks, Ken & Piccione, Michele & Tan, Guofu, 1995. "The Economics of Hubs: The Case of Monopoly," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 83-99, January.
    4. Raaj Kumar Sah & Joseph E. Stiglitz, 1984. "The Architecture of Economic Systems: Hierarchies and Polyarchies," NBER Working Papers 1334, National Bureau of Economic Research, Inc.
    5. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
    6. Ludovic Renou & Tristan Tomala, 2008. "Mechanism Design and Communication Networks," Discussion Papers in Economics 08/35, Department of Economics, University of Leicester.
    7. Cabrales, Antonio & Calvó-Armengol, Antoni & Zenou, Yves, 2010. "Social Interactions and Spillovers," CEPR Discussion Papers 8127, C.E.P.R. Discussion Papers.
    8. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
    9. Andrea Galeotti & Sanjeev Goyal, 2007. "The Law of the Few," Economics Discussion Papers 636, University of Essex, Department of Economics.
    10. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
    11. Ballester, Coralio & Calvó-Armengol, Antoni, 2010. "Interactions with hidden complementarities," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 397-406, November.
    12. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-46, September.
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