Download This PaperCan A Social Planner Manipulate Network Dynamics And Solve Coordination Problems?
64 Pages Posted: 28 Apr 2020 Last revised: 2 Jun 2025
Date Written: April 27, 2020
Abstract
This paper examines whether social planners can improve welfare by strategically manipulating network formation without directly controlling agent decisions. We develop a dynamic network model where agents face coordination problems under incomplete information and exhibit confirmation bias. The social planner influences the evolution of the network by controlling the set of potential connections offered to agents, while the agents retain full autonomy over their actual networking decisions. Through simulations, we show that welfare-maximizing social planners create networks where high-precision agents develop high indegree centrality, while low-precision agents develop high outdegree centrality. Counterintuitively, social planners with incorrect beliefs about fundamentals can achieve better welfare outcomes than those with noisy but unbiased information.
Keywords: network dynamics, internet, higher-orderbeliefs, learning, expert
JEL Classification: 85, D83, D82, D72, C78
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