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Estimating the neighborhood influence on decision makers: theory and an application on the analysis of innovation decisions

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  • Hautsch, Nikolaus
  • Klotz, Stefan

Abstract

When making decisions, agents tend to make use of decisions others have made in similar situations. Ignoring this behavior in empirical models can be interpreted as a problem of omitted variables and may seriously bias parameter estimates and harm inference. We suggest a possibility of integrating such outside in uences into models of discrete choice decisions by defining an abstract space in which agents with similar characteristics are neighbors who possibly in uence each other. In order to correct for correlations between the characteristics, the design of this space allows for nonorthogonality of its dimensions. Several Monte Carlo simulations show the small sample properties of spatial models with binary choice. When applying the estimator to innovation decisions data of German firms, we find evidence for the existence of neighborhood effects.
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  • Hautsch, Nikolaus & Klotz, Stefan, 2003. "Estimating the neighborhood influence on decision makers: theory and an application on the analysis of innovation decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 52(1), pages 97-113, September.
    • Handle: RePEc:eee:jeborg:v:52:y:2003:i:1:p:97-113
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    3. Johannes Rincke, 2006. "Policy innovation in local jurisdictions: Testing for neighborhood influence in school choice policies," Public Choice, Springer, vol. 129(1), pages 189-200, October.
    4. Konno, Tomohiko & Ioannides, Yannis M., 2019. "The exact solution of spatial logit response games," Mathematical Social Sciences, Elsevier, vol. 97(C), pages 1-10.
    5. Johannes Rincke, 2005. "Policy Innovation in Local Jurisdictions: Testing the Neighborhood Influence Against the Free-Riding Hypothesis," Public Economics 0511009, University Library of Munich, Germany.
    6. Di Porto Edoardo & Revelli Federico, 2009. "Central Command, Local Hazard and the Race to the Top," Department of Economics and Statistics Cognetti de Martiis. Working Papers 200909, University of Turin.
    7. Elzbieta Antczak & Ewa Galecka-Burdziak & Robert Pater, 2016. "Spatial Labour Market Matching," CERGE-EI Working Papers wp578, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    8. Johannes Rincke, 2005. "Policy Innovation in Local Jurisdictions: Testing the Neighborhood Influence Against the Free-Riding Hypothesis," Public Economics 0511017, University Library of Munich, Germany.
    9. Kihiu, Evelyne Nyathira, 2016. "Basic capability effect: Collective management of pastoral resources in southwestern Kenya," Ecological Economics, Elsevier, vol. 123(C), pages 23-34.
    10. Rincke, Johannes, 2005. "Neighborhood Influence and Political Change: Evidence from US School Districts," ZEW Discussion Papers 05-16, ZEW - Leibniz Centre for European Economic Research.
    11. Johannes Rincke, 2005. "Neighborhood Influence and Political Change: Evidence from US School Districts," Public Economics 0511011, University Library of Munich, Germany.
    12. Schaffer, Axel & Düvelmeyer, Claudia, 2016. "Regional drivers of on-farm energy production in Bavaria," Energy Policy, Elsevier, vol. 95(C), pages 361-369.
    13. Zhu, Fengxia & Zou, Shaoming & Xu, Hui, 2017. "Launching reverse-innovated product from emerging markets to MNC’s home market: A theoretical framework for MNC’s decisions," International Business Review, Elsevier, vol. 26(1), pages 156-163.
    14. Buettner, Thiess & von Schwerin, Axel, 2016. "Yardstick competition and partial coordination: Exploring the empirical distribution of local business tax rates," Journal of Economic Behavior & Organization, Elsevier, vol. 124(C), pages 178-201.
    15. Rincke, Johannes, 2005. "Policy Innovation in Local Jurisdictions: Testing the Neighborhood Influence Against the Free-Riding Hypothesis," ZEW Discussion Papers 05-08, ZEW - Leibniz Centre for European Economic Research.

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