Network Design in Games with Spillovers
University of Leicester - Department of Economics; Ca Foscari University of Venice - Department of Economics; Euro Mediterranean Centre for Climate Change (CMCC); Fondazione Eni Enrico Mattei (FEEM), Milan
University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 16/06
How should an organization be designed in order to provide its members with minimal incentives to defect? And how does the optimal design depend on the type of strategic interaction between defectors and remaining organizational members? This paper addresses such issues in a game theoretic model of cooperation, in which an organization is formally represented by a connected network, and where gains from cooperation are given by a partition function. We show that critical structural features of the organization depend in a clear-cut way on the sign of spillovers. In particular, positive spillovers favor the adoption of dispersed and centralized forms, while negative spillovers favor cohesive and horizontal ones. Moreover, if the organizational form determines all the communication possibilities of members, a highly centralized organization - the star - emerges under positive spillovers, whereas two horizontal architectures - the circle and the complete - emerge under negative spillovers.
Number of Pages in PDF File: 24
Keywords: Organizational design, networks, group stability, spillovers
JEL Classification: C7, C71, D20working papers series
Date posted: November 28, 2006
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