In many contexts, an individual’s beliefs and behavior are affected by the choices of their social or geographic neighbors. This influence results in local correlation in people’s actions, which in turn affects how information and behaviors spread. Previously developed frameworks capture local social influence using network games, but discard local correlation in players’ strategies. This paper develops a network games framework that allows for local correlation in players’ strategies by incorporating a richer partial information structure than previous models. Using this framework we also examine the dependence of equilibrium outcomes on network clustering—the probability that two individuals with a mutual neighbor are connected to each other. We find that clustering reduces the number of players needed to provide a public good and allows for market sharing in technology standards competitions.
