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Networks, Markets, and Inequality

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  • Julien Gagnon
  • Sanjeev Goyal

Abstract

The interaction between community and markets remains a central theme in the social sciences. The empirical evidence is rich: in some instances, markets strengthen social ties, while in others they undermine them. The impact of markets on inequality and welfare also varies widely. This paper develops a model where individuals in a social network choose whether to participate in their network and whether to participate in the market. We show that individual behavior is defined by the q-core of the network and the key to understanding the conflicting evidence is whether the market and the network are complements or substitutes.

Suggested Citation

  • Julien Gagnon & Sanjeev Goyal, 2017. "Networks, Markets, and Inequality," American Economic Review, American Economic Association, vol. 107(1), pages 1-30, January.
  • Handle: RePEc:aea:aecrev:v:107:y:2017:i:1:p:1-30
    Note: DOI: 10.1257/aer.20150635
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    References listed on IDEAS

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    1. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    2. Kaivan Munshi, 2014. "Community Networks and the Process of Development," Journal of Economic Perspectives, American Economic Association, vol. 28(4), pages 49-76, Fall.
    3. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-1418, December.
    4. Arnott, Richard & Stiglitz, Joseph E, 1991. "Moral Hazard and Nonmarket Institutions: Dysfunctional Crowding Out or Peer Monitoring?," American Economic Review, American Economic Association, vol. 81(1), pages 179-190, March.
    5. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    6. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
    7. Kaivan Munshi & Mark Rosenzweig, 2006. "Traditional Institutions Meet the Modern World: Caste, Gender, and Schooling Choice in a Globalizing Economy," American Economic Review, American Economic Association, vol. 96(4), pages 1225-1252, September.
    8. Henrich, Joseph & Boyd, Robert & Bowles, Samuel & Camerer, Colin & Fehr, Ernst & Gintis, Herbert (ed.), 2004. "Foundations of Human Sociality: Economic Experiments and Ethnographic Evidence from Fifteen Small-Scale Societies," OUP Catalogue, Oxford University Press, number 9780199262052.
    9. Timothy Besley, 2013. "What's the Good of the Market? An Essay on Michael Sandel's What Money Can't Buy," Journal of Economic Literature, American Economic Association, vol. 51(2), pages 478-495, June.
    10. Kranton, Rachel E, 1996. "Reciprocal Exchange: A Self-Sustaining System," American Economic Review, American Economic Association, vol. 86(4), pages 830-851, September.
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    Cited by:

    1. Walsh, A. M., 2019. "Games on Multi-Layer Networks," Cambridge Working Papers in Economics 1954, Faculty of Economics, University of Cambridge.

    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • Z31 - Other Special Topics - - Tourism Economics - - - Industry Studies

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