Strategic Interaction and Networks
Yann Bramoullé, Rachel Kranton, Martin D'Amours
American Economic Review · 2014 · Volume 104 · Issue 3
Abstract
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.
Keywords
Noncooperative Games, Search, Learning, Information and Knowledge, Communication, Belief, Network Formation and Analysis: Theory, Public Goods, Illegal Behavior and the Enforcement of Law, Technological Change: Choices and Consequences, Diffusion Processes, Economic Sociology, Economic Anthropology, Social and Economic Stratification
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