Econometrica: Nov 2020, Volume 88, Issue 6
Targeting Interventions in Networks
Andrea Galeotti, Benjamin Golub, Sanjeev Goyal
We study games in which a network mediates strategic spillovers and externalities among the players. How does a planner optimally target interventions that change individuals' private returns to investment? We analyze this question by decomposing any intervention into orthogonal principal components, which are determined by the network and are ordered according to their associated eigenvalues. There is a close connection between the nature of spillovers and the representation of various principal components in the optimal intervention. In games of strategic complements (substitutes), interventions place more weight on the top (bottom) principal components, which reflect more global (local) network structure. For large budgets, optimal interventions are simple—they essentially involve only a single principal component.
Supplement to "Targeting Interventions in Networks"
Throughout the online appendix, we refer often to sections, results, and equations in the main text and its appendix using the numbering established there. The numbers of sections, results, and equations in this online appendix are all pre xed by OA to distinguish them.