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Welfare Analysis in Games with substitutabilities

By Yann Rébillé and Lionel Richefort

Abstract

This paper investigates the social optimum in network games of strategic substitutes and identifies how network structure shapes optimal policies. First, we show that the socially optimal profile is ob-tained through a combination of two opposite network effects, generated by the incoming and the outgoing weighted Bonacich centrality measures. Next, three different policies that restore the social optimum are derived, and the implications of the predecessor(s)-successor(s) relationship between the agents on each policy instrument are explored. Then, the link between optimal taxes and the density of the network is established

Topics: spectral radius, network game, social optimum, Bonacich centrality, opti- mal policy, spectral radius., JEL: A - General Economics and Teaching/A.A1 - General Economics/A.A1.A14 - Sociology of Economics, JEL: D - Microeconomics/D.D8 - Information, Knowledge, and Uncertainty/D.D8.D85 - Network Formation and Analysis: Theory, JEL: D - Microeconomics/D.D2 - Production and Organizations/D.D2.D21 - Firm Behavior: Theory, [SHS.ECO]Humanities and Social Sciences/Economics and Finance, [SHS.GESTION]Humanities and Social Sciences/Business administration
Publisher: HAL CCSD
Year: 2012
OAI identifier: oai:HAL:hal-00732950v1
Provided by: HAL-Univ-Nantes

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