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Galeotti, A., Golub, B. and Goyal, S.

Targeting Interventions in Networks

CWPE1744

Abstract: 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 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 simple - targeting a single principal component.

Author links: Sanjeev Goyal  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1744.pdf


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