Introduction to the Special Issue on Networks and Externalities

• DOI: http://doi.org/10.1111/jpet.12187
• Author: SUDIPTA SARANGI,CHRISTOPHE BRAVARD
• Date: 01 April 2016
• Published date: 01 April 2016

INTRODUCTION TO THE SPECIAL ISSUE ON

NETWORKS AND EXTERNALITIES

CHRISTOPHE BRAVARD

Universit´

e Grenoble 2 and CNRS

SUDIPTA SARANGI

Virginia Tech

The burgeoning literature on networks in economics has strong links with public eco-

nomic theory and some of its key assumptions come from that field. For instance, the

two seminal papers in the literature on network formation, Jackson and Wolinski (1996)

and Bala and Goyal (2000), assume that players are interested in acquiring a nonrival

good. Externalities play a crucial role in both papers because agents obtain resources

from others with whom they are not directly linked, and, as a result, connected agents

benefit from costly links formed by other agents. This fact underpins one of the central

issues in the literature on network formation, namely, the conflict between the set of

stable networks and the set of efficient networks and ways to resolve this conflict.

The links between research on networks and public economic theory extends to

the question of how agents embedded in social and economic networks have an impact

of issues like public good provision. This literature is related to the seminal paper of

Bramoull´

e and Kranton (2007). In their study, the authors consider how the incentives

of agents to provide public goods are modified when these agents are embedded in an

exogenously specified social network. Bramoull´

e and Kranton show that, in this setup,

some individuals contribute while others free ride. In a similar vein, Galeotti and Goyal

(2010) examine a situation wherein agents simultaneously form links and contribute to

a public good, that is, they allow agents to strategically form social links before they play

a public good game. In these papers the relationship to public economics is clear and

direct. Nonetheless, a great deal of work remains to be done. We believe that a research

agenda at the intersection of these two fields—networks and public economic theory—

can be expanded by going beyond public good provision type problems and exploring

the role played by different types of externalities in a network setting. This special issue

consists of nine papers that examine different ways in which researchers have attempted

to span this intersection. Of the nine papers, the first five are theoretical in nature, while

the last four are more applied in nature. The topics of these applied papers range from

applied theory, to empirical testing of theory, to an experiment.

1. Theoretical Papers

The paper by Joshi and Saber offers an important theoretical contribution that exam-

ines network formation by explaining how a player’s position in the network interacts

Christophe Bravard, Universit´

e Grenoble 2, UMR 1215 GAEL, F38000 Grenoble, France; CNRS, GATE

Lyon St Etienne, Saint-Etienne, F-42000, France (christophe.bravard@univ-st-etienne.fr). Sudipta

Sarangi, Department of Economics, Virginia Tech (ssarangi@vt.edu).

Received February 12, 2016; Accepted February 12, 2016.

C2016 Wiley Periodicals, Inc.

Journal of Public Economic Theory, 18 (2), 2016, pp. 143–147.

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