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Social distance, heterogeneity and social interactions

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  • Cont, Rama
  • Löwe, Matthias
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    Abstract

    A crucial ingredient in social interaction models is the structure of peer groups, which link individuals with similar characteristics. We propose and study a dynamic binary choice model with social interactions in which heterogeneity of peer group effects is modeled introducing diversity in individual characteristics and linking pairwise influences to a social distance between individuals. Our framework allows for mimetic as well as anti-mimetic interactions and a heterogeneous structure of peer groups across individuals. Dynamic equilibria are studied in the limit when the number of agents is large. We show that the model exhibits multiple equilibria resulting from conflicts between various group pressures the individuals are subjected to. We study in particular the correlation in the population at equilibrium between the characteristics of the agents and their decisions: this quantity has an interesting empirical interpretation and solves a simple analytical equation when the number of agents is large. Finally we discuss the empirical content of the model and present a consistent estimator for the parameter describing which is consistent for any typical population regardless of the structure of individual characteristics.

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    File URL: http://www.sciencedirect.com/science/article/B6VBY-4YP0N1D-6/2/5e7c9f4e85ba0566e527dcc64ec13f29
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Mathematical Economics.

    Volume (Year): 46 (2010)
    Issue (Month): 4 (July)
    Pages: 572-590

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    Handle: RePEc:eee:mateco:v:46:y:2010:i:4:p:572-590

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    Web page: http://www.elsevier.com/locate/jmateco

    Related research

    Keywords: Discrete choice models Social interactions Hopfield model Disordered systems Random utility models Limit theorems Neural networks Heterogeneity;

    References

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    1. Becker, Gary S, 1974. "A Theory of Social Interactions," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1063-93, Nov.-Dec..
    2. George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
    3. Edward L. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," NBER Working Papers 5026, National Bureau of Economic Research, Inc.
    4. Jackson, Matthew O. & Rogers, Brian W., 2005. "The economics of small worlds," Working Papers 1214, California Institute of Technology, Division of the Humanities and Social Sciences.
    5. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
    6. D. Foster & P. Young, 2010. "Stochastic Evolutionary Game Dynamics," Levine's Working Paper Archive 493, David K. Levine.
    7. Orlean, Andre, 1995. "Bayesian interactions and collective dynamics of opinion: Herd behavior and mimetic contagion," Journal of Economic Behavior & Organization, Elsevier, vol. 28(2), pages 257-274, October.
    8. Kirman, Alan P., 1983. "Communication in markets : A suggested approach," Economics Letters, Elsevier, vol. 12(2), pages 101-108.
    9. 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.
    10. Jones, Andrew M., 1994. "Health, addiction, social interaction and the decision to quit smoking," Journal of Health Economics, Elsevier, vol. 13(1), pages 93-110, March.
    11. Evans, William N & Oates, Wallace E & Schwab, Robert M, 1992. "Measuring Peer Group Effects: A Study of Teenage Behavior," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 966-91, October.
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    Cited by:
    1. Michel Grabisch & Agnieszka Rusinowska, 2010. "A model of influence with a continuum of actions," Working Papers 1004, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
    2. Emilio Barucci & Marco Tolotti, 2012. "Identity, reputation and social interaction with an application to sequential voting," Journal of Economic Interaction and Coordination, Springer, vol. 7(1), pages 79-98, May.
    3. Favara, Marta, 2012. "The Cost of Acting "Girly": Gender Stereotypes and Educational Choices," IZA Discussion Papers 7037, Institute for the Study of Labor (IZA).
    4. Markussen, Simen & Røed, Knut, 2012. "Social Insurance Networks," IZA Discussion Papers 6446, Institute for the Study of Labor (IZA).

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