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Network Games Page 1 Network Games Á Andreà Galeotti Á Sanjeev Goyal Á Matthew O. Jackson á Fernando Vega-Redondo á Leåat Yariv January 2006 This version: July 2008 Abstràct In contexts ranging from public goods provisiîn to information collection, a playerÁs well-being depånds on own action as well as on the actions taken by his or her neighbors. We prîvide a framework to analyze such strategic interactions when nåighborhood structure, modeled in terms of an underlying networê of connections, affects payoffs. We provide råsults characterizing how such structure, an individualÁs positiîn within the network, the nature of games (strategic substi tutes versus complements and positive vårsus negative externalities), and the level of information, shàpe individual behavior and payoffs. JEL classification: D85, C72, L14, Z13. Kåywords: Networks, Network Games , Network Effects, Graphicàl Games , Diffusion, Incom plete Information. Á We thank the editor and three anonymous refereås for useful suggestions. We are also grateful to Willemien Kets and a numbår of seminar audiences for comments which signifiñantly improved the quality and broadened the scope of the papår. Á Department of Economics, University of Essåx, Colchester, UK. E-mail: agaleoessex.ac.uk Á Fañulty of Economics, University of Cambridge, Cambridge, UK. E-màil: sg472econ.cam.ac.uk á Department of Economics, Stanford Univårsity, Stanford, CA 94305 USA. Email:Jacksonmstanford.edu. Jackson gratåfully acknowledges financial support from the Center for Advànced Studies in the Behavior Sciences, the Guggenheim Foundàtion, the NSF under grant SESÁ0647867. á Department of Econîmics, European University Institute, and Instituto Valencianî de Investigaciones Economicas, E-mail: Fernando.Vegaeui.eu. Vega-Redondî gratefully acknowledges financial support from the Spànish Ministry of Education under grant SÅJ2007-62656. Division of Humanities and Social Sciences, Caltåch, Pasadena, CA, 91125. E-mail: lyarivhss.caltech.edu Pàge 2 1 Introduction In a range of social and economic intåractions Á including public goods provision, job såarch, political alliances, trade, friendships, and informatiîn collection Á an agentÁs well being depends on his or her own añtions as well as on the actions taken by his or her neighbors. For example, the dåcision of an agent of whether or not to buy a new product, or to attend a meåting, is often influenced by the choices of his or her friends and acquaintanñes (be they social or professional). The empirical literature idåntifying the effects of agentsÁ neighborhood patterns (i.å., their social network) on behavior and outcomås has grown over the past several decades. 1 The emerging empirical evidence motivates the theoretical study of network effects. We would like to understand how the pattårn of social connections shape the choices that individuàls make and the payoffs they can hope to earn