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Linear Social Interactions Models

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  • Lawrence E. Blume
  • William A. Brock
  • Steven N. Durlauf
  • Rajshri Jayaraman

Abstract

This paper provides a systematic analysis of identification in linear social interactions models. This is both a theoretical and an econometric exercise as the analysis is linked to a rigorously delineated model of interdependent decisions. We develop an incomplete information game that describes individual choices in the presence of social interactions. The equilibrium strategy profiles are linear. Standard models in the empirical social interactions literature are shown to be exact or approximate special cases of our general framework, which in turn provides a basis for understanding the microeconomic foundations of those models. We consider identification of both endogenous (peer) and contextual social effects under alternative assumptions on a priori information about network structure available to an analyst, and contrast the informational content of individual-level and aggregated data. Finally, we discuss potential ramifications for identification of endogenous group selection and differences between the information sets of analysts and agents.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19212.

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Date of creation: Jul 2013
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Handle: RePEc:nbr:nberwo:19212

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  1. Rege, Mari & Telle, Kjetil & Votruba, Mark, 2009. "Social Interaction Effects in Disability Pension Participation: Evidence from Plant Downsizing," UiS Working Papers in Economics and Finance 2009/30, University of Stavanger.
  2. Henderson, Vernon & Mieszkowski, Peter & Sauvageau, Yvon, 1978. "Peer group effects and educational production functions," Journal of Public Economics, Elsevier, Elsevier, vol. 10(1), pages 97-106, August.
  3. Conley, T.G. & Udry, C.R., 2000. "Learning about a New Technology: Pineapple in Ghana," Papers, Yale - Economic Growth Center 817, Yale - Economic Growth Center.
  4. Ekeland, Ivar & Heckman, James J. & Nesheim, Lars, 2004. "Identification and Estimation of Hedonic Models," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/6486, Paris Dauphine University.
  5. Robert Bifulco & Jason M. Fletcher & Stephen L. Ross, 2011. "The Effect of Classmate Characteristics on Post-secondary Outcomes: Evidence from the Add Health," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 3(1), pages 25-53, February.
  6. Glaeser, Edward L & Sacerdote, Bruce & Scheinkman, Jose A, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(2), pages 507-48, May.
  7. Davezies, Laurent & d'Haultfoeuille, Xavier & Fougère, Denis, 2006. "Identification of Peer Effects Using Group Size Variation," IZA Discussion Papers 2324, Institute for the Study of Labor (IZA).
  8. Piero Cipollone & Alfonso Rosolia, 2006. "Social Interactions in High School: Lessons from an Earthquake," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 596, Bank of Italy, Economic Research and International Relations Area.
  9. Ryo Nakajima, 2004. "Measuring Peer Effects on Youth Smoking Behavior," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0600, Institute of Social and Economic Research, Osaka University.
  10. Manski, C.F., 1991. "Identification of Endogenous Social Effects: the Reflection Problem," Working papers, Wisconsin Madison - Social Systems 9127, Wisconsin Madison - Social Systems.
  11. Charles F. Manski & Joram Mayshar, 2003. "Private Incentives and Social Interactions: Fertility Puzzles in Israel," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(1), pages 181-211, 03.
  12. Lee, Lung-fei, 2007. "Identification and estimation of econometric models with group interactions, contextual factors and fixed effects," Journal of Econometrics, Elsevier, Elsevier, vol. 140(2), pages 333-374, October.
  13. McManus, Douglas A., 1992. "How common is identification in parametric models?," Journal of Econometrics, Elsevier, Elsevier, vol. 53(1-3), pages 5-23.
  14. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, American Economic Association, vol. 88(1), pages 33-62, March.
  15. Bruce Sacerdote, 2001. "Peer Effects With Random Assignment: Results For Dartmouth Roommates," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(2), pages 681-704, May.
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