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:

Open Access Full Text:

Papers and Publications

Recent Publications

Bhattacharya, D. The Empirical Content of Binary Choice Models Econometrica [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]

Cavalcanti, T. and Santos, M. (Mis)Allocation Effects of an Overpaid Public Sector Journal of the European Economic Association [2020]

Todd, P. E. and Zhang, W. A Dynamic Model of Personality, Schooling, and Occupational Choice Quantitative Economics [2020]