Authors: Sergio Currarini, Carmen Marchiori and Alessandro Tavoni

Recent research has shown how explicitly modelling the network structure of social and economic relations can provide significant theoretical insights, as well as account for previously unexplained empirical evidence. Relevant areas of application range from labour markets to diffusion of opinions and diseases, trade and financial markets, R&D collaborations, and friendship and peer effects identification.
Networks are particularly suited to analyse problems where social distance affects the nature and extent of economic interactions. In a network agents interact only with a subset of other agents called the neighbours. For instance, in labour markets information on job vacancies mainly flows on social ties. Likewise, peer effects are observed, among others, in friendships and workplace relationships.

Local interactions and network structures appear to be a prominent feature of many environmental problems. For example, the pattern of adoption and the speed of diffusion of green technologies are likely to depend on the network of social connections. Within the context of international environmental cooperation, the complexity of multiple issue negotiation may involve non-transitive relations which can be modelled as a network. Furthermore, many common pool resource problems are characterized by a multiplicity of sources and users. The strategic decisions of which source to use can be described as the formation of a link, while the decision of how much to extract can be modelled as local interaction on the network.

The aim of this paper is to discuss some potential contribution of network economics to environmental and resource economics. We first overview the distinguishing features of network economics, the role of the network in affecting socio-economic interactions and the incentives that agents face when forming and severing links. We then identify features of environmental problems which motivate the use of networks, by focusing on specific issues and analysing in some detail how the use of network theory can provide new insights for both theory and practice.