This thesis is a collection of three essays. The first two study how ideas spread through a network of individuals, and how it an advertiser can exploit it. In the model I develop, users choose their sources of information based on the perceived usefulness of their sources of information. This contrasts with previous literature where there is no choice made by network users and thus, the information flow is fixed. I provide a complete theoretical characterization of the solution and define a natural measure of influence based on choices of users. I also present an algorithm to solve the model in polynomial time on any network, regardless of the scale or the topology. I also discuss the properties of a network technology from a public economic standpoint. In essence, a network allows the reproduction of ideas for free for the advertiser. If there is any free-riding problem, I show that coalitions of users on the network can solve such problem. I also discuss the social value of networks, a value that cannot be captured for profit. The third essay is completely distinct from the network paradigm and instead studies funding rules for public universities. I show that a funding rule that depends solely on enrolment leads to "competition by franchise" and that such behavior is sometimes inefficient. I suggest instead an alternate funding rule that allows government to increase welfare without increasing spending in universities.

This dissertation contains three essays in Game Theory and Network Economics. The First Chapter studies how economic networks are formed. Random networks occur in many economic situations, such as transactions among financial institutions, trade between countries or social relationships. Network formation can be based on utility theory and translates into a game in a normal form. For this formation process, we derive a probability distribution over all networks. Further, we derive a test procedure to test whether the formation only depends on node characteristics or whether it involves strategic interaction. This test procedure does not require knowledge of model parameters. We show how a locally most powerful test statistic can be derived from the utility function. The network formation theory is extended from directed networks to undirected networks, in which a link is formed by bilateral agreement. The test procedure can also be used to test model parameters and to analyze restricted networks. Simulation results support the theory. The Second Chapter analyzes credit networks. Credit contracts among financial institutions form in a natural way a directed network. A default of a financial institution affects another institution via multiple paths in the network. The credit claims are settled in accordance with the seniority of the contract. The objective of this paper is to determine how the network and seniority structures impact the stability under shocks. In order to achieve this goal, we develop a simulation algorithm. The algorithm considers the network as well as the seniority constraints. We prove the correctness of the algorithm and derive a polynomial bound on the runtime. The simulation results indicate that the characteristics of a network have an impact on the overall stability of the financial system. Cyclic borrowing has a negative effect on stability. In a distressed situation, cyclic borrowing structure enhances.