Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5100079 | Journal of Economic Theory | 2017 | 55 Pages |
Abstract
Individuals derive benefits from their connections, but these may expose them to external threats. Agents therefore invest in security to protect themselves. What are the network architectures that maximize collective welfare? We propose a model to explore the tension between connectivity and exposure to an external threat when security choices are decentralized. We find that both over-investment and under-investment in security are possible, and that optimal network architectures depend on the prevailing source of inefficiencies. Social welfare may be maximized in sparse connected networks when under-investment pressures are present, and fragmented networks when over-investment pressures prevail.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Diego A. Cerdeiro, Marcin DziubiÅski, Sanjeev Goyal,