Games of Social Interactions With Externalities

Abstract

This paper studies a class of games in which players' payoffs explicitly depend on their intrinsic preferences over the set of available alternatives, level of social interaction and the global influence of the aggregate societal choices. Using the potential functions approach, we examine the conditions under which the games admit a Nash equilibrium in pure strategies with a special emphasis on the role of social interactions. The existence results are then applied to examine the welfare consequences of the introduction of common goods and the adoption of new technologies.