skip to content

Faculty of Economics

Journal Cover

Cerdeiro, D.A., Dziubinski, M. and Goyal, S.

Individual security, contagion, and network design

Journal of Economic Theory

Vol. 170 pp. 182-226 (2017)

Abstract: Individuals derive benefits from their connections, but these may expose them to external threats. Agents therefore invest in security to protect themselves. What are the network architectures that maximize collective welfare? We propose a model to explore the tension between connectivity and exposure to an external threat when security choices are decentralized. We find that both over-investment and under-investment in security are possible, and that optimal network architectures depend on the prevailing source of inefficiencies. Social welfare may be maximized in sparse connected networks when under-investment pressures are present, and fragmented networks when over-investment pressures prevail.

Keywords: Individual security, Inefficiencies, Network design, Networks

JEL Codes: D85, D62, C72

Author links: Sanjeev Goyal  

Publisher's Link: http://www.sciencedirect.com/science/article/pii/S0022053117300583

Open Access Full Text: https://www.repository.cam.ac.uk/handle/1810/265233



Papers and Publications



Recent Publications


Carvalho, V. M., Nirei, M., Saito, Y. U. and Tahbaz-Salehi, A. Supply Chain Disruptions: Evidence from the Great East Japan Earthquake Quarterly Journal of Economics, forthcoming [2021]

Faraglia, E., Marcet, A., Oikonomou, R. and Scott, A. Government Debt management: the Short and the Long of it Review of Economic Studies [2019]

Dziubinski, M., Goyal, S. and Minarsch, D. E. N. The Strategy of Conquest Journal of Economic Theory, forthcoming [2020]

Acconcia, A., Corsetti, G. and Simonelli, S. Liquidity and Consumption: Evidence from Three Post-earthquake Reconstruction Programs in Italy American Economic Journal: Macroeconomics [2020]