Network Interventions: Targeting Agents or Targeting Links?

TL;DR

This paper analyzes optimal network interventions considering endogenous link formation and how the intrinsic value of links influences whether to subsidize actions or links, revealing different strategies for maximizing welfare.

Contribution

It introduces a model for optimal interventions in network games with endogenous links, highlighting how link value affects intervention strategies.

Findings

Optimal interventions depend on whether links have positive or negative intrinsic value.

When links are valuable, focus on subsidizing actions; otherwise, include link subsidies.

The structure of optimal intervention strategies reverses with endogenous links compared to exogenous links.

Abstract

Consider a network game with linear best responses and spillovers between players, and let agents endogenously choose their links. A planner considers interventions to subsidize actions and/or links between players, aiming to maximize a welfare function depending on equilibrium actions. The structure of the optimal intervention depends on whether links provide non-negative intrinsic value to agents. When they do, it is optimal to focus only on subsidizing actions. When the intrinsic value of links is negative, we give conditions for including link subsidies to be optimal. This reverses the basic structure of the optimal intervention in settings with exogenous links.