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Discrete Choice with Social Interactions I: Theory

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Author Info
William A. Brock
Steven N. Durlauf

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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 the noncooperative economy are contrasted with 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 of income equations, and large cross-group differences in binary choice behavior.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5291.

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Date of creation: Oct 1995
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Publication status: published as Brock, William A. and Steven N. Durlauf. "Discrete Choice With Social Interactions," Review of Economic Studies, 2001, v68(235,Apr), 235-260.
Handle: RePEc:nbr:nberwo:5291

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Find related papers by JEL classification:
D6 - Microeconomics - - Welfare Economics
J2 - Labor and Demographic Economics - - Demand and Supply of Labor

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. William A. Brock, 1993. "Pathways to randomness in the economy: Emergent nonlinearity and chaos in economics and finance," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 8(1), pages 3-55.
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  2. repec:att:wimass:19956 is not listed on IDEAS
  3. Bénabou, Roland, 1994. "Education, Income Distribution, and Growth: The Local Connection," CEPR Discussion Papers 995, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Durlauf, Steven N, 1993. "Nonergodic Economic Growth," Review of Economic Studies, Blackwell Publishing, vol. 60(2), pages 349-66, April. [Downloadable!] (restricted)
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  5. Glaeser, Edward L & Sacerdote, Bruce & Scheinkman, Jose A, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 507-48, May. [Downloadable!] (restricted)
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  6. repec:att:wimass:199530 is not listed on IDEAS
  7. Borjas, George J, 1992. "Ethnic Capital and Intergenerational Mobility," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 123-50, February. [Downloadable!] (restricted)
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  8. William A. Brock & Cars H. Hommes, 1995. "Rational Routes to Randomness," Working Papers 95-03-029, Santa Fe Institute.
  9. 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. [Downloadable!]
  10. 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. [Downloadable!] (restricted)
  11. Bryant, John, 1983. "A Simple Rational Expectations Keynes-Type Model," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 525-28, August. [Downloadable!] (restricted)
  12. Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 619-52, August. [Downloadable!] (restricted)
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  13. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Blackwell Publishing, vol. 60(3), pages 531-42, July. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
  15. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October. [Downloadable!] (restricted)
  16. Follmer, Hans, 1974. "Random economies with many interacting agents," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 51-62, March. [Downloadable!] (restricted)
  17. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Brian Krauth, 2000. "Social Interactions, Thresholds, and Unemployment in Neighborhoods," Discussion Papers dp00-12, Department of Economics, Simon Fraser University, revised 28 Mar 2000. [Downloadable!]
    Other versions:
  2. Weisbuch, Gerard, Alan Kirman, and Dorothea K. Herreiner, 1996. "Market Organization," Discussion Paper Serie B 391, University of Bonn, Germany. [Downloadable!]
    Other versions:
  3. Geoffrey Heal & Howard Kunreuther, 2007. "Social Reinforcement: Cascades, Entrapment and Tipping," NBER Working Papers 13579, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Liam Aspin, 1997. "Focal Points, Preferences and the Generation of Meaning," Papers _001, University of East Anglia, Economics Research Centre. [Downloadable!]
  5. V. M. Darley & S. A. Kauffman, 1996. "Natural Rationality," Working Papers 96-08-071, Santa Fe Institute.
  6. repec:att:wimass:19199928 is not listed on IDEAS
  7. H. Peyton Young & Mary A. Burke, 2001. "Competition and Custom in Economic Contracts: A Case Study of Illinois Agriculture," American Economic Review, American Economic Association, vol. 91(3), pages 559-573, June. [Downloadable!] (restricted)
  8. Thomas Norman, . "Step-by-Step Evolution with State-Dependent Mutations," Economics Papers 2003-W08, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  9. repec:att:wimass:19979r is not listed on IDEAS
  10. Randal J. Verbrugge, 1998. "Local Complementarities and Aggregate Fluctuations," Macroeconomics 9809016, EconWPA, revised 30 Sep 1998. [Downloadable!]
  11. Susan Lee, 1999. "Assortative Interactions and Endogenous Stratification," Working Papers 99-08-056, Santa Fe Institute.
  12. S. Galam & A. Vignes, 2003. "Fashion, Creativity and Efficiency : An application from Physics," Working Papers ERMES 0303, ERMES, University Paris 2. [Downloadable!]
  13. repec:att:wimass:19977 is not listed on IDEAS
  14. A. Bassanini & G. Dosi, 1998. "Competing Technologies, International Diffusion and the Rate of Convergence to a Stable Market Structure," Working Papers ir98012, International Institute for Applied Systems Analysis. [Downloadable!]
  15. Steven N. Durlauf, 1996. "Statistical Mechanics Approaches to Socioeconomic Behavior," NBER Technical Working Papers 0203, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  16. Verspagen,Bert, 1998. "Long run Growth, Convergence and Factor Prices," Research Memoranda 018, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
  17. Mordecai Kurz, 1997. "Social States of Belief and the Determinants of the Equity Risk Premium in A Rational Belief Equilibrium," Working Papers 97026, Stanford University, Department of Economics. [Downloadable!]
  18. Bruce Sacerdote, 2000. "Peer Effects with Random Assignment: Results for Dartmouth Roommates," NBER Working Papers 7469, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. repec:att:wimass:199711r is not listed on IDEAS
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