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Social Networks and the Aggregation on Individual Decisions

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  • D. Lee Heavner
  • Lance Lochner

Abstract

This paper analyzes individual decisions to participate in an activity and the aggregation of those decisions when individuals gather information about the outcomes and choices of (a few) others in their social network. In this environment, aggregate participation rates are generally inefficient. Increasing the size of social networks does not necessarily increase efficiency and can lead to less efficient long-run outcomes. Both subsidies for participation and penalties for non-participation can increase participation rates, though not necessarily by the same amount. Punishing non-participation has much greater effects on participation rates than rewarding participation when current rates are very low. A program that provides youth with mentors who have participated themselves can increase participation rates, especially when those rates are low. Finally, communities plagued by the flight of successful participants will experience lower short- and long-run participation rates.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8979.

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Date of creation: Jun 2002
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Handle: RePEc:nbr:nberwo:8979

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  1. Allison, G. & Fudenberg, D., 1992. "Rules of Thumb for Social Learning," Working papers 92-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Timothy G. Conley & Christopher R. Udry, 2010. "Learning about a New Technology: Pineapple in Ghana," American Economic Review, American Economic Association, vol. 100(1), pages 35-69, March.
  3. Mark Rosenzweig & Andrew D. Foster, . "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Home Pages _068, University of Pennsylvania.
  4. Duflo, Esther & Saez, Emmanuel, 2002. "Participation and investment decisions in a retirement plan: the influence of colleagues' choices," Journal of Public Economics, Elsevier, vol. 85(1), pages 121-148, July.
  5. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2001. "Social Interaction and Stock-Market Participation," NBER Working Papers 8358, National Bureau of Economic Research, Inc.
  6. Timothy Conley & Udry Christopher, 2001. "Social Learning Through Networks: The Adoption of New Agricultural Technologies in Ghana," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 668-673.
  7. Banerjee, Abhijit & Fudenberg, Drew, 2004. "Word-of-mouth learning," Games and Economic Behavior, Elsevier, vol. 46(1), pages 1-22, January.
  8. Jeff Dominitz & Charles F. Manski, 1994. "Eliciting Student Expectations of the Returns to Schooling," NBER Working Papers 4936, National Bureau of Economic Research, Inc.
  9. Manski, Charles F., 1993. "Dynamic choice in social settings : Learning from the experiences of others," Journal of Econometrics, Elsevier, vol. 58(1-2), pages 121-136, July.
  10. Julian R. Betts, 1996. "What Do Students Know about Wages? Evidence from a Survey of Undergraduates," Journal of Human Resources, University of Wisconsin Press, vol. 31(1), pages 27-56.
  11. Bertrand, M. & Luttmer, E.F.P. & Mullainathan, S., 1998. "Network Effects and Welfare Cultures," Papers 201, Princeton, Woodrow Wilson School - Public and International Affairs.
  12. Edward L. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," NBER Working Papers 5026, National Bureau of Economic Research, Inc.
  13. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
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  15. Lance Lochner, 2001. "A Theoretical and Empirical Study of Individual Perceptions of the Criminal Justice System," RCER Working Papers 483, University of Rochester - Center for Economic Research (RCER).
  16. Fudenberg, Drew & Ellison, Glenn, 1995. "Word-of-Mouth Communication and Social Learning," Scholarly Articles 3196300, Harvard University Department of Economics.
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Cited by:
  1. Lance Lochner, 2003. "Individual Perceptions of the Criminal Justice System," NBER Working Papers 9474, National Bureau of Economic Research, Inc.
  2. Yannis M. Ioannides & Linda Datcher Loury, 2002. "Job Information Networks, Neighborhood Effects and Inequality," Discussion Papers Series, Department of Economics, Tufts University 0217, Department of Economics, Tufts University.
  3. Bjerk, David, 2010. "Thieves, thugs, and neighborhood poverty," Journal of Urban Economics, Elsevier, vol. 68(3), pages 231-246, November.
  4. repec:hal:journl:halshs-00344780 is not listed on IDEAS

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