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Social interactions and spillovers

Author Info

  • Cabrales, Antonio
  • Calvó-Armengol, Antoni
  • Zenou, Yves

Abstract

The aim of this paper is to provide a tractable model where both socialization (or network formation) and productive efforts can be analyzed simultaneously. This permits a full-fledged equilibrium/welfare analysis of network formation with endogenous productive efforts and heterogeneous agents. We show that there exist two stable interior equilibria, which we can Pareto rank. The socially efficient outcome lies between these two equilibria. When the intrinsic returns to production and socialization increase, all equilibrium actions decrease at the Pareto-superior equilibrium, while they increase at the Pareto-inferior equilibrium. In both cases, the percentage change in socialization effort is higher (in absolute value) than that of the productive effort.

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 72 (2011)
Issue (Month): 2 (June)
Pages: 339-360

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Handle: RePEc:eee:gamebe:v:72:y:2011:i:2:p:339-360
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

Keywords: Peer effects Network formation Welfare;

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Find related papers by JEL classification:
  • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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  • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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