Economics of Networks

The economics of networks is a thriving new field. Rachel Kranton develops formal models of networks in different economic settings.  Her work draws on empirical findings and integrates new mathematical tools to uncover how network structures influence economic outcomes.  The economics of networks is part of a larger emergent field of network science, which spans may disciplines including computer science and information science.

Rachel Kranton, along with collaborators, has studied buyer-seller networks, risk-sharing networks, and public goods, and games played on networks. Her current work focuses on strategic interaction and innovation. Main findings include:

  • Informal exchange can overtake markets, even when markets are efficient. “Reciprocal Exchange: A Self-Sustaining System,” American Economic Review, 1996.
  • Buyers can have the incentive to form efficient links to sellers. “A Theory of Buyer-Seller Networks,” American Economic Review, 2001, with Deborah Minehart.
  • Nash equilibria in public goods games are related to maximal independent sets of a graph. “Public Goods in Networks,” Journal of Economic Theory, 2007, with Yann Bramoullé.
  • In games played on networks where best replies are linear, the equilibrium set is related to the lowest eigenvalue of the network graph. “Strategic Interaction and Networks,” American Economic Review, 2014, with Yann Bramoullé.
  • News providers can have little incentive to produce high quality news when consumers share news in social networks since even false news spreads widely. Unless providers receive revenues that derive from consumers’ actions based on the news, such as voting. “Social Networks and the Market for News,” working paper, joint with David McAdams.