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Strategic Interaction and Networks
Yann Bramoullé, Rachel Kranton, and Martin D'Amours

American Economic Review 2014, 104(3): 898-930

Geography and social links shape economic interactions. In industries,
schools, and markets, the entire network determines outcomes. This paper
analyzes a large class of games and obtains a striking result. Equilibria
depend on a single network measure: the lowest eigenvalue. This paper is
the first to uncover the importance of the lowest eigenvalue to economic
and social outcomes. It captures how much the network amplifies agents'
actions. The paper combines new tools--potential games, optimization, and
spectral graph theory--to solve for all Nash and stable equilibria and
applies the results to R&D, crime, and the econometrics of peer effects.

Dan Ryan <>
Kathryn P. Hannam Associate Professor, teaching in sociology and public
Mills College <>, Oakland, CA. | |

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