Individual security, contagion, and network design

Diego A. Cerdeiro, Marcin Dziubiński, Sanjeev Goyal

Research output: Contribution to journalArticlepeer-review


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.

Original languageEnglish (US)
Pages (from-to)182-226
Number of pages45
JournalJournal of Economic Theory
StatePublished - Jul 2017


  • Individual security
  • Inefficiencies
  • Network design
  • Networks

ASJC Scopus subject areas

  • Economics and Econometrics


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