  We study network games in which players both create spillovers for one
another and choose with whom to associate. The endogenous outcomes include both
the strategic actions (e.g., effort levels) and the network in which spillovers
occur. We introduce a framework and two solution concepts that extend standard
approaches -- Nash equilibrium in actions and pairwise (Nash) stability in
links. Our main results show that under suitable monotonicity assumptions on
incentives, stable networks take simple forms. Our central conditions concern
whether actions and links are strategic complements or substitutes, as well as
whether links create positive or negative payoff spillovers. We apply our model
to understand the consequences of competition for status, to microfound
matching models that assume clique formation, and to interpret empirical
findings that highlight unintended consequences of group design.
