Targeting Interventions in Networks

Galeotti, A, Golub, B and Goyal, S (2020) Targeting Interventions in Networks. Econometrica, 88 (6). pp. 2445-2471. ISSN 0012-9682

Abstract

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 involve a single principal component.