Social Networks and Interactions in Cities
AbstractWe examine how interaction choices depend on the interplay of social and physical distance, and show that agents who are more central in the social network, or are located closer to the geographic center of interaction, choose higher levels of interactions in equilibrium. As a result, the level of interactivity in the economy as a whole will rise with the density of links in the social network and with the degree to which agents are clustered in physical space. When agents can choose geographic locations, there is a tendency for those who are more central in the social network to locate closer to the interaction center, leading to a form of endogenous geographic separation based on social distance. Finally, we show that the market equilibrium is not optimal because of social externalities. We determine the value of the subsidy to interactions that could support the first-best allocation as an equilibrium and show that interaction effort and the incentives for clustering are higher under the subsidy program.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8260.
Date of creation: Feb 2011
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Other versions of this item:
- Helsley, Robert & Zenou, Yves, 2011. "Social Networks and Interactions in Cities," Research Papers in Economics 2011:8, Stockholm University, Department of Economics.
- Helsley, Robert W. & Zenou, Yves, 2011. "Social Networks and Interactions in Cities," IZA Discussion Papers 5506, Institute for the Study of Labor (IZA).
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
- R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
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