Network Cycles and Welfare
14 Pages Posted: 30 Oct 2017 Last revised: 7 Nov 2017
Date Written: November 3, 2017
In a wide variety of social settings (e.g. crime, education, political activism, technology adoption), players’ returns to their efforts depend on how much effort others exert. Modeling these situations as a network game with strategic complementarities, we show that a player’s cycle centrality — a weighted sum of the number of network cycles that she is in — determines the extent to which she benefits from her complementarities with others. In contrast to the widely-used Bonacich centrality — which measures how efforts propagate through the network — cycle centrality measures how the variance of efforts propagates through the network. A utilitarian social planner who can incentivize one player’s effort targets the one with the highest cycle centrality.
Keywords: Strategic complementarities, social networks, Nash equilibrium, centrality, cycles, welfare
JEL Classification: C72, D85, H41, K42, L14, O33
Suggested Citation: Suggested Citation