Who's Who in Networks: Wanted - the Key Player

Abstract

Finite population non-cooperative games with linear-quadratic utilities, where each player decides how much action she exerts, can be interpreted as a network game with local payoff complementarities, together with a globally uniform payoff substitutability component and an own concavity effect. For these games, the Nash equilibrium action of each player is proportional to her Bonacich centrality in the network of local complementarities, thus establishing a bridge with the sociology literature on social networks. This Bonacich-Nash linkage implies that aggregate equilibrium increases with network size and density. We then analyze a policy that consists in targeting the key player, that is, the player who, once removed, leads to the optimal change in aggregate activity. We provide a geometric characterization of the key player identified with an inter-centrality measure, which takes into account both a player's centrality and her contribution to the centrality of the others.

Keywords: Social networks, peer effects, centrality measures, policies

JEL Classification: A14, C72, L14