Targeting Interventions in Networks
Andrea Galeotti, Benjamin Golub, Sanjeev Goyal
Econometrica · 2020 · Volume 88 · Issue 6
Abstract
We study games in which a network mediates strategic spillovers and externalities among the players. How does a planner optimally target interventions that change individuals' private returns to investment? We analyze this question by decomposing any intervention into orthogonalprincipal components, which are determined by the network and are ordered according to their associated eigenvalues. There is a close connection between the nature of spillovers and the representation of various principal components in the optimal intervention. In games of strategic complements (substitutes), interventions place more weight on the top (bottom) principal components, which reflect more global (local) network structure. For large budgets, optimal interventions are simple—they essentially involve only a single principal component.
Keywords
Targeting, interventions, networks, strategic interaction, externalities, peer effects, network games
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