An Economic Model of Friendship: Homophily, Minorities, and Segregation
We develop a model of friendship formation that sheds light on segregation patterns observed in social and economic networks. Individuals have types and see type-dependent benefits from friendships. We examine the properties of a steady-state equilibrium of a matching process of friendship formation. We use the model to understand three empirical patterns of friendship formation: (i) larger groups tend to form more same-type ties and fewer other-type ties than small groups, (ii) larger groups form more ties per capita, and (iii) all groups are biased towards same-type relative to demographics, with the most extreme bias coming from middle-sized groups. We show how these empirical observations can be generated by biases in preferences and biases in meetings. We also illustrate some welfare implications of the model. Copyright 2009 The Econometric Society.
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Volume (Year): 77 (2009)
Issue (Month): 4 (07)
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- Friedman, James W, 1973. "Concavity of Production Functions and Non-Increasing Returns to Scale," Econometrica, Econometric Society, vol. 41(5), pages 981-84, September.
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- Alison Watts, 2006. "Formation of Segregated and Integrated Groups," Working Papers 2006.127, Fondazione Eni Enrico Mattei.
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"Prologue to The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies
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