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Faculty of Economics

Tuesday, 7 March, 2017

Networks, Markets, and Inequality, Julien Gagnon and Sanjeev Goyal, American Economic Review, vol. 107, no. 1, pp. 1-30 (2017)

Abstract The interaction between community and markets remains a central theme in the social sciences. The empirical evidence is rich: in some instances, markets strengthen social ties, while in others they undermine them. The impact of markets on inequality and welfare also varies widely. This paper develops a model where individuals in a social network choose whether to participate in their network and whether to participate in the market. We show that individual behavior is defined by the q-core of the network and the key to understanding the conflicting evidence is whether the market and the network are complements or substitutes.

How do you Defend a Network?, Marcin Konrad Dziubiński and Sanjeev Goyal, Theoretical Economics, vol 12, no 1 ( 2017)

Abstract Modern economies rely heavily on their infrastructure networks. These networks face threats ranging from natural disasters to human attacks. As networks are pervasive, the investments needed to protect them are very large; this motivates the study of targeted defence. What are the "key" nodes to defend to maximize functionality of the network? What are the incentives of individual nodes to protect themselves in a networked environment and how do these incentives correspond to collective welfare? We provide a characterization of equilibrium attack and defence in terms of two classical concepts in graph theory : separators and transversals. We use this characterization to study the intensity of conflict (the resources spent on attack and defence) and the prospects of active conflict (when both adversary and defender target nodes for action) in networks. Finally, we show that welfare costs of decentralized defence can be very large.

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