Cities at Play: Improving Equilibria in Urban Neighbourhood Games

How should cities invest to improve social welfare when individuals respond strategically to local conditions? We model this question using a game-theoretic version of Schelling's bounded neighbourhood model, where agents choose neighbourhoods based on concave, non-monotonic utility functions reflecting local population. While naive improvements may worsen outcomes - analogous to Braess' paradox - we show that carefully designed, small-scale investments can reliably align individual incentives with societal goals. Specifically, modifying utilities at a total cost of at most $0.81 ε^2 \cdot \texttt{opt}$ guarantees that every resulting Nash equilibrium achieves a social welfare of at least $ε\cdot \texttt{opt}$, where $\texttt{opt}$ is the optimum social welfare. Our results formalise how targeted interventions can transform supra-negative outcomes into supra-positive returns, offering new insights into strategic urban planning and decentralised collective behaviour.

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