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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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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 52 (2003)
Issue (Month): 1 (September)
Pages: 97-113

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Handle: RePEc:eee:jeborg:v:52:y:2003:i:1:p:97-113

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References

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  1. Brock,W.A. & Durlauf,S.N., 2000. "Discrete choice with social interactions," Working papers 7, Wisconsin Madison - Social Systems.
  2. Baptista, Rui, 2000. "Do innovations diffuse faster within geographical clusters?," International Journal of Industrial Organization, Elsevier, vol. 18(3), pages 515-535, April.
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  5. Case, Anne, 1992. "Neighborhood influence and technological change," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 491-508, September.
  6. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
  7. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
  8. Anne C. Case & Lawrence F. Katz, 1991. "The Company You Keep: The Effects of Family and Neighborhood on Disadvantaged Youths," NBER Working Papers 3705, National Bureau of Economic Research, Inc.
  9. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
  10. Manski, C.F., 1991. "Identification of Endogenous Social Effects: the Reflection Problem," Working papers 9127, Wisconsin Madison - Social Systems.
  11. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
  12. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  13. George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
  14. Pinkse, Joris & Slade, Margaret E., 1998. "Contracting in space: An application of spatial statistics to discrete-choice models," Journal of Econometrics, Elsevier, vol. 85(1), pages 125-154, July.
  15. Licht, Georg & Harhoff, Dietmar, 1993. "Das Mannheimer Innovationspanel," ZEW Discussion Papers 93-21, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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Citations

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Cited by:
  1. 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.
  2. Théophile AZOMAHOU, 2001. "Efficient Estimation of Spatial Autoregressive Models," Working Papers of BETA 2001-05, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  3. Edoardo Di Porto & Federico Revelli, 2009. "Central command, local hazard and the race to the top," Working Papers 2009/26, Institut d'Economia de Barcelona (IEB).
  4. Rincke, Johannes, 2005. "Neighborhood Influence and Political Change: Evidence from US School Districts," ZEW Discussion Papers 05-16, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Johannes Rincke, 2005. "Policy Innovation in Local Jurisdictions: Testing the Neighborhood Influence Against the Free-Riding Hypothesis," Public Economics 0511009, EconWPA.
  6. Rincke, Johannes, 2005. "Policy Innovation in Local Jurisdictions: Testing the Neighborhood Influence Against the Free-Riding Hypothesis," ZEW Discussion Papers 05-08, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Théophile Azomahou, 2001. "GMM Estimation of Lattice Models Using Panel Data: Application," Working Papers of BETA 2001-09, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  8. Johannes Rincke, 2005. "Neighborhood Influence and Political Change: Evidence from US School Districts," Public Economics 0511011, EconWPA.
  9. Théophile AZOMAHOU, 1999. "Estimation of Spatial Panel Data Models Using a Minimum Distance Estimator: Application," Working Papers of BETA 9912, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  10. Johannes Rincke, 2005. "Policy Innovation in Local Jurisdictions: Testing the Neighborhood Influence Against the Free-Riding Hypothesis," Public Economics 0511017, EconWPA.

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