Targeting interventions in networks

Economics

Social Sciences Research Network

Galeotti A; Golub B; Goyal S

Andrea Galeotti

2017

We study the design of optimal interventions in network games, where individuals' incentives to act are affected by their network neighbors' actions. A planner shapes individuals' incentives, seeking to maximize the group's welfare. We characterize how the planner's intervention depends on the network structure. A key tool is the decomposition of any possible intervention into \emph{principal components}, which are determined by diagonalizing the adjacency matrix of interactions. There is a close connection between the strategic structure of the game and the emphasis of the optimal intervention on various principal components: In games of strategic complements (substitutes), interventions place more weight on the top (bottom) principal components. For large budgets, optimal interventions are \textit{simple} -- targeting a single principal component

Social Sciences Research Network

No

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