Network Design in Games with Spillovers
(2004)working paper.Abstract
How should an organization be designed in order to provide its member with minimal incentives to defect? And how does the optimal design depend on the type of strategic interaction between defectors and remaining organizational members? This paper provides insigts into the above isses in a game theoretic model of cooperation, in which an organization is formally represented by a connected network, and where gains form cooperation are given by a partition function. We show that critical structural features of the solution of the design problem depend in a clear-cut way oon the sign of spillovers. In particular, positive spillovers favor the adoption of disperesed and centralized organization, while negative spillovers favor cohesive and horizontal ones. Moreover, if connectedness in the organization matters for the ability or coalitions to defect, them a highly centralized organization --- the star --- emerges under positive spillovers, whereas two horizontal architectures --- the wheel and complete --- emerge under negative spillovers.
Description
March 2008