Targeting Interventions in Networks

TL;DR

This paper explores how a planner can optimally target interventions in network games with strategic spillovers by decomposing interventions into principal components related to the network structure.

Contribution

It introduces a method to decompose interventions into orthogonal principal components based on the network's eigenstructure, linking spillover nature to intervention design.

Findings

Optimal interventions focus on top or bottom principal components depending on game type.

For large budgets, interventions simplify to targeting a single principal component.

Interventions are influenced by the network's eigenvalues and structure.

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.