If you want to install the application in the shared folder, you need to think about Code Access Security. By default, the .net execute will not run from shared folders.
Refer the below links.
http://msdn.microsoft.com/en-us/library/930b76w0(v=vs.90).aspx
http://blogs.msdn.com/shawnfa/archive/2004/12/30/344554.aspx
http://blogs.msdn.com/shawnfa/archive/2005/07/27/443975.aspx
The .NET Framework comes with a utility called CasPol.exe that can be used to tweak trust policies that result in the above-mentioned security exceptions.
The primary command line towards achieving this is -
CasPol.exe -m -ag 1.2 -url file://Network_PC_Name/Share_Name/* FullTrust
First install the application in PC1 as usual, access it from the shared folder from PC2.
You need to use normal / default windows setup to create the deployment option.
http://www.c-sharpcorner.com/UploadFile/rahul4_saxena/Setup08232007071849AM/Setup.aspx
Please let me know, if you need further information.
Hope this helps you.