IDEAS home Printed from https://ideas.repec.org/a/eee/gamebe/v105y2017icp349-367.html
   My bibliography  Save this article

Peer effects in endogenous networks

Author

Listed:
  • Hiller, Timo

Abstract

This paper presents a model of strategic network formation with local complementarities in effort levels and positive local externalities. Results are obtained for a general class of payoff functions, which subsumes the linear-quadratic specification frequently used in theoretical and applied work. We assume homogeneous agents and characterize equilibria for two-sided and one-sided link formation. (Pairwise) Nash equilibrium networks are nested split graphs, which are a strict subset of core-periphery networks. We highlight the relevance of the convexity of the value function for obtaining these structures. More central agents are shown to exert more effort and obtain higher gross payoffs in equilibrium. However, net of linking cost, central agents may obtain strictly lower net payoffs. The curvature of the value function is also important for efficiency considerations. These findings are relevant for many social and economic phenomena, such as educational attainment, criminal activity, labor market participation, and R&D expenditures of firms.

Suggested Citation

  • Hiller, Timo, 2017. "Peer effects in endogenous networks," Games and Economic Behavior, Elsevier, vol. 105(C), pages 349-367.
    • Handle: RePEc:eee:gamebe:v:105:y:2017:i:c:p:349-367
    DOI: 10.1016/j.geb.2017.07.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0899825617301367
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.geb.2017.07.010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Edward L. Glaeser & Bruce Sacerdote & José A. Scheinkman, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(2), pages 507-548.
    2. Jens Ludwig & Greg J. Duncan & Paul Hirschfield, 2001. "Urban Poverty and Juvenile Crime: Evidence from a Randomized Housing-Mobility Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 655-679.
    3. Dutta, Bhaskar & Ghosal, Sayantan & Ray, Debraj, 2005. "Farsighted network formation," Journal of Economic Theory, Elsevier, vol. 122(2), pages 143-164, June.
    4. Belhaj, Mohamed & Bervoets, Sebastian & Deroïan, Frédéric, 2016. "Efficient networks in games with local complementarities," Theoretical Economics, Econometric Society, vol. 11(1), January.
    5. Soramäki, Kimmo & Bech, Morten L. & Arnold, Jeffrey & Glass, Robert J. & Beyeler, Walter E., 2007. "The topology of interbank payment flows," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 317-333.
    6. Allouch, Nizar, 2015. "On the private provision of public goods on networks," Journal of Economic Theory, Elsevier, vol. 157(C), pages 527-552.
    7. Coralio Ballester & Antoni Calvó-Armengol & Yves Zenou, 2006. "Who's Who in Networks. Wanted: The Key Player," Econometrica, Econometric Society, vol. 74(5), pages 1403-1417, September.
    8. Sanjeev Goyal, 2007. "Introduction to Connections: An Introduction to the Economics of Networks," Introductory Chapters, in: Connections: An Introduction to the Economics of Networks, Princeton University Press.
    9. Paul Belleflamme & Francis Bloch, 2004. "Market sharing agreements and collusive networks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 387-411, May.
    10. Antoni Calvó-Armengol & Eleonora Patacchini & Yves Zenou, 2009. "Peer Effects and Social Networks in Education," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(4), pages 1239-1267.
    11. 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.
    12. Yann Bramoull? & Rachel Kranton & Martin D'Amours, 2014. "Strategic Interaction and Networks," American Economic Review, American Economic Association, vol. 104(3), pages 898-930, March.
    13. Goyal, Sanjeev & Joshi, Sumit, 2003. "Networks of collaboration in oligopoly," Games and Economic Behavior, Elsevier, vol. 43(1), pages 57-85, April.
    14. , D. & Tessone, Claudio J. & ,, 2014. "Nestedness in networks: A theoretical model and some applications," Theoretical Economics, Econometric Society, vol. 9(3), September.
    15. Zenou, Yves & Calvó-Armengol, Antoni & Patacchini, Eleonora, 2005. "Peer Effects and Social Networks in Education and Crime," CEPR Discussion Papers 5244, C.E.P.R. Discussion Papers.
    16. Belhaj, Mohamed & Bramoullé, Yann & Deroïan, Frédéric, 2014. "Network games under strategic complementarities," Games and Economic Behavior, Elsevier, vol. 88(C), pages 310-319.
    17. Markus Kinateder & Luca Paolo Merlino, 2017. "Public Goods in Endogenous Networks," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 187-212, August.
    18. Anna Piil Damm & Christian Dustmann, 2014. "Does Growing Up in a High Crime Neighborhood Affect Youth Criminal Behavior?," American Economic Review, American Economic Association, vol. 104(6), pages 1806-1832, June.
    19. Giorgio Topa, 2001. "Social Interactions, Local Spillovers and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(2), pages 261-295.
    20. Case, A.C. & Katz, L.F., 1991. "The Company You Keep: The Effects Of Family And Neighborhood On Disadvantaged Younths," Harvard Institute of Economic Research Working Papers 1555, Harvard - Institute of Economic Research.
    21. Richard C. Levin & Peter C. Reiss, 1988. "Cost-Reducing and Demand-Creating R&D with Spillovers," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 538-556, Winter.
    22. Patrick Bayer & Randi Hjalmarsson & David Pozen, 2009. "Building Criminal Capital behind Bars: Peer Effects in Juvenile Corrections," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 105-147.
    23. Bruce Sacerdote, 2001. "Peer Effects with Random Assignment: Results for Dartmouth Roommates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(2), pages 681-704.
    24. Andrea Galeotti & Sanjeev Goyal, 2010. "The Law of the Few," American Economic Review, American Economic Association, vol. 100(4), pages 1468-1492, September.
    25. Caroline Hoxby, 2000. "Peer Effects in the Classroom: Learning from Gender and Race Variation," NBER Working Papers 7867, National Bureau of Economic Research, Inc.
    26. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-596, September.
    27. John Kennan, 2001. "Uniqueness of Positive Fixed Points for Increasing Concave Functions on Rn: An Elementary Result," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(4), pages 893-899, October.
    28. Cabrales, Antonio & Calvó-Armengol, Antoni & Zenou, Yves, 2011. "Social interactions and spillovers," Games and Economic Behavior, Elsevier, vol. 72(2), pages 339-360, June.
    29. Bramoulle, Yann, 2007. "Anti-coordination and social interactions," Games and Economic Behavior, Elsevier, vol. 58(1), pages 30-49, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:cep:stitep:/2013/564 is not listed on IDEAS
    2. Jackson, Matthew O. & Zenou, Yves, 2015. "Games on Networks," Handbook of Game Theory with Economic Applications,, Elsevier.
    3. Timo Hiller & Timo Hiller, 2013. "Peer Effects in Endogenous Networks," STICERD - Theoretical Economics Paper Series 564, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    4. Hiller, Timo, 2013. "Peer effects in endogenous networks," LSE Research Online Documents on Economics 58176, London School of Economics and Political Science, LSE Library.
    5. Liu, Xiaodong & Patacchini, Eleonora & Zenou, Yves & Lee, Lung-Fei, 2011. "Criminal Networks: Who is the Key Player?," Research Papers in Economics 2011:7, Stockholm University, Department of Economics.
    6. ,, 2015. "Social activity and network formation," Theoretical Economics, Econometric Society, vol. 10(2), May.
    7. Topa, Giorgio & Zenou, Yves, 2015. "Neighborhood and Network Effects," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 561-624, Elsevier.
    8. , D. & Tessone, Claudio J. & ,, 2014. "Nestedness in networks: A theoretical model and some applications," Theoretical Economics, Econometric Society, vol. 9(3), September.
    9. Hiller, Timo, 2022. "A simple model of network formation with competition effects," Journal of Mathematical Economics, Elsevier, vol. 99(C).
    10. Ushchev, Philip & Zenou, Yves, 2020. "Social norms in networks," Journal of Economic Theory, Elsevier, vol. 185(C).
    11. Coralio Ballester & Antoni Calvó-Armengol & Yves Zenou, 2010. "Delinquent Networks," Journal of the European Economic Association, MIT Press, vol. 8(1), pages 34-61, March.
    12. de Martí, Joan & Zenou, Yves, 2009. "Social Networks," IZA Discussion Papers 4621, Institute of Labor Economics (IZA).
    13. Yang Sun & Wei Zhao & Junjie Zhou, 2021. "Structural Interventions in Networks," Papers 2101.12420, arXiv.org, revised Feb 2021.
    14. Helsley, Robert W. & Zenou, Yves, 2014. "Social networks and interactions in cities," Journal of Economic Theory, Elsevier, vol. 150(C), pages 426-466.
    15. Chih‐Sheng Hsieh & Lung‐Fei Lee & Vincent Boucher, 2020. "Specification and estimation of network formation and network interaction models with the exponential probability distribution," Quantitative Economics, Econometric Society, vol. 11(4), pages 1349-1390, November.
    16. Belhaj, Mohamed & Bramoullé, Yann & Deroïan, Frédéric, 2014. "Network games under strategic complementarities," Games and Economic Behavior, Elsevier, vol. 88(C), pages 310-319.
    17. Del Bello, Carlo L. & Patacchini, Eleonora & Zenou, Yves, 2015. "Neighborhood Effects in Education," IZA Discussion Papers 8956, Institute of Labor Economics (IZA).
    18. Philippe, Arnaud, 2017. "Incarcerate one to calm the others? Spillover effects of incarceration among criminal groups: Job Market Paper," TSE Working Papers 17-840, Toulouse School of Economics (TSE).
    19. Patrick Bayer & Stephen L. Ross & Giorgio Topa, 2008. "Place of Work and Place of Residence: Informal Hiring Networks and Labor Market Outcomes," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1150-1196, December.
    20. Sanjeev Goyal, 2015. "Networks in Economics: A Perspective on the Literature," Cambridge Working Papers in Economics 1548, Faculty of Economics, University of Cambridge.
    21. M. Koenig & Claudio J. Tessone & Yves Zenou, "undated". "A Dynamic Model of Network Formation with Strategic Interactions," Working Papers CCSS-09-006, ETH Zurich, Chair of Systems Design.

    More about this item

    Keywords

    Strategic network formation; Peer effects; Strategic complements; Positive externalities;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:gamebe:v:105:y:2017:i:c:p:349-367. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.