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Social Networking And Individual Outcomes: Individual Decisions And Market Context

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Author Info
YANNIS M. IOANNIDES () (tufts university)
Adriaan R. Soetevent () (University of Amsterdam and Tinbergen Institute)

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Abstract

This paper examines social interactions when social networking is endogenous. It employs a linear-quadratic model that accommodates contextual e®ects, and endogenous local inter- actions, that is where individuals react to the decisions of their neighbors, and endogenous global ones, where individuals react to the mean decision in the economy, both with a lag. Unlike the simple V AR(1) structural model of individual interactions, the planner's problem here involves intertemporal optimization and leads to a system of linear di®erence equations with expectations. It highlights an asset-like property of socially optimal outcomes in every period which helps characterize the shadow values of connections among agents. Endogenous networking is easiest to characterize when individuals choose weights of social attachment to other agents. It highlights a simultaneity between decisions and patterns of social at- tachment. The paper also poses the inverse social interactions problem, asking whether it is possible to design a social network whose agents' decisions will obey an arbitrarily speci¯ed variance covariance matrix.

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Paper provided by NET Institute in its series Working Papers with number 05-16.

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Length: 29 pages
Date of creation: Oct 2005
Date of revision: Oct 2005
Handle: RePEc:net:wpaper:0516

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Find related papers by JEL classification:
D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
J0 - Labor and Demographic Economics - - General

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  15. Edward L. Glaeser & Bruce I. Sacerdote & Jose A. Scheinkman, 2003. "The Social Multiplier," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 345-353, 04/05. [Downloadable!] (restricted)
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  16. 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)
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