Strategic Interaction and Networks
Geography and social links shape interactions between people and firms. In schools, industries, and markets, the entire network of links ultimately determines incentives and outcomes. This paper analyzes a large class of games on networks and obtains a striking result. Equilibria depend on a single number: the lowest eigenvalue of a network matrix. This paper is the first to uncover the importance of the lowest eigenvalue to economic and social outcomes. It captures the greatest possible amplification of strategic play. The paper combines new tools — potential games, optimization, and spectral graph theory — to solve for all Nash and stable equilibria for any network and applies the results to information creation, crime, and the econometrics of peer effects.
Rachel Kranton is the James B. Duke Professor of Economics at Duke University. She studies how institutions and the social setting affect economic outcomes. She develops theories of networks and has introduced identity into economic thinking.
She earned her Ph.D. in economics at the University California, Berkeley, in 1993, has taught at the University of Maryland, and joined Duke’s faculty in 2007. She has been awarded fellowships at the Russell Sage Foundation in New York and the Institute for Advanced Study in Princeton. In 2010 she was awarded a Chaire Blaise Pascal, and she was elected a fellow of the Econometric Society in 2012.
Her research contributes to many fields including microeconomics, economic development, and industrial organization. In Identity Economics, she and her collaborator, George Akerlof, introduce a general framework to study social norms and identity in economics. Building on fifteen years of research, the book studies not only race and gender, but also identity in schools and the workplace. In the economics of networks, she develops formal models of strategic interaction in different economic settings. Her work draws on empirical findings and integrates new mathematical tools to uncover how network structures influence economic outcomes. Along with her collaborators Yann Bramoullé and Deborah Minehart, she has studied buyer-seller networks, risk-sharing networks, and network public goods.
She has a long-standing interest in development economics and institutions. She focuses on the costs and benefits of networks and informal exchange, which is economic activity mediated by social relationships rather than markets. Along with Anand Swamy, she has studied the historical impact of legal and other reforms on economic activity.
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