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The Empirical Content of Models with Multiple Equilibria in Economies with Social Interactions

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  • Alberto Bisin
  • Andrea Moro
  • Giorgio Topa

Abstract

We study a general class of models with social interactions that might display multiple equilibria. We propose an estimation procedure for these models and evaluate its efficiency and computational feasibility relative to different approaches taken to the curse of dimensionality implied by the multiplicity. Using data on smoking among teenagers, we implement the proposed estimation procedure to understand how group interactions affect health-related choices. We find that interaction effects are strong both at the school level and at the smaller friends-network level. Multiplicity of equilibria is pervasive at the estimated parameter values, and equilibrium selection accounts for about 15 percent of the observed smoking behavior. Counterfactuals show that student interactions, surprisingly, reduce smoking by approximately 70 percent with respect to the equilibrium smoking that would occur without interactions.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17196.

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Date of creation: Jul 2011
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Handle: RePEc:nbr:nberwo:17196

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Cited by:
  1. �ureo de Paula, 2013. "Econometric Analysis of Games with Multiple Equilibria," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 5(1), pages 107-131, 05.
  2. ÖZGÜR, Onur & BISIN, Alberto, 2011. "Dynamic Linear Economies with Social Interactions," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 04-2011, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  3. Vincent BOUCHER & Ismael MOURIFIÉ, 2013. "My Friend Far Far Away: Asymptotic Properties of Pairwise Stable Networks," Working Papers tecipa-499, University of Toronto, Department of Economics.
  4. Batarce, Marco & Ivaldi, Marc, 2014. "Urban travel demand model with endogenous congestion," Transportation Research Part A: Policy and Practice, Elsevier, Elsevier, vol. 59(C), pages 331-345.

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