Discrete Choice with Social Interactions I: Theory
AbstractThis 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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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5291.
Date of creation: Oct 1995
Date of revision:
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.
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Other versions of this item:
- Brock, W.A. & Durlauf, S.N., 1995. "Discrete Choice with Social Interactions I: Theory," Working papers 9521, Wisconsin Madison - Social Systems.
- William A. Brock & Steven N. Durlauf, 1995. "Discrete Choice with Social Interactions I: Theory," Working Papers 95-10-084, Santa Fe Institute.
- D6 - Microeconomics - - Welfare Economics
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
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