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Discrete Choice with Social Interactions I: Theory

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Author Info

  • Brock, W.A.
  • Durlauf, S.N.

Abstract

This paper provides an analysis of aggregate behavioral outcomes when individual utility exhibits social interaction effects. We study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behavior of others in an environment of noncooperative decisionmaking. Laws of large numbers are generated in such environments. Multiplicity of equilibria in these models, which are equivalent to the existence of multiple self-consistent means for average choice behavior, will exist when the social interactions exceed a particular threshold. Local stability of these multiple equilibria is also studied. The properties of an economy in which a social planner determines the set of individual choices. The model is additionally shown to be well suited to explaining a number of empirical phenomena, such as threshold effects in individual behavior, ethnic group fixed effects in income equations, and large cross-group differences in binary choice behavior.

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Bibliographic Info

Paper provided by Wisconsin Madison - Social Systems in its series Working papers with number 9521.

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Length: pages
Date of creation: 1995
Date of revision:
Handle: RePEc:att:wimass:9521

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Postal: UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.

Related research

Keywords: UTILITY FUNCTION; MODELS; MATHEMATICS;

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References

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  1. Borjas, George J, 1992. "Ethnic Capital and Intergenerational Mobility," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 123-50, February.
  2. 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.
  3. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
  4. Follmer, Hans, 1974. "Random economies with many interacting agents," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 51-62, March.
  5. Steven N. Durlauf, 1991. "Nonergodic Economic Growth," NBER Working Papers 3719, National Bureau of Economic Research, Inc.
  6. Brock, W.A. & Hommes, C.H., 1995. "Rational Routes to Randomness," Working papers 9506, Wisconsin Madison - Social Systems.
  7. Glenn C. Loury, 1976. "A Dynamic Theory of Racial Income Differences," Discussion Papers 225, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Edward L. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," NBER Working Papers 5026, National Bureau of Economic Research, Inc.
  9. Benabou, R., 1994. "Education, Income Distribution, and Growth: The Local Connection," Working papers 94-16, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Roland Benabou, 1991. "Workings of a City: Location, Education, and Production," NBER Technical Working Papers 0113, National Bureau of Economic Research, Inc.
  11. Manski, C.F., 1991. "Identification of Endogenous Social Effects: the Reflection Problem," Working papers 9127, Wisconsin Madison - Social Systems.
  12. W. A. Brock, 1993. "Pathways to Randomness in the Economy: Emergent Nonlinearity and Chaos in Economics and Finance," Working Papers 93-02-006, Santa Fe Institute.
  13. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-50, October.
  14. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
  15. Ionnides, Yannis M, 1990. "Trading Uncertainty and Market Form," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 619-38, August.
  16. Manski, C.F., 1992. "Identification Problems in the Social Sciences," Working papers 9217, Wisconsin Madison - Social Systems.
  17. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  18. Bryant, John, 1983. "A Simple Rational Expectations Keynes-Type Model," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 525-28, August.
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