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Choosing peers: Homophily and polarization in groups


  • Baccara, Mariagiovanna
  • Yariv, Leeat


This paper studies the formation of peer groups entailing the joint production of public goods. In our model agents choose their peers and have to pay a connection cost for each member added to the group. After groups are formed, each agent selects a public project to make a costly contribution to, and all members of the group experience the benefits of these contributions. Since agents differ in how much they value one project relative to the other, the group's preferences affect the generated profile of public goods. We characterize mutually optimal groups, groups that are optimal for all their members. When contribution costs are low relative to connection costs, mutually optimal groups must be sufficiently homogeneous. As contribution costs increase relative to connection costs, agents desire more connections, which in turn raises the risk of free riding. Extreme peers are then more appealing, since they are more willing to contribute, and polarization arises.

Suggested Citation

  • Baccara, Mariagiovanna & Yariv, Leeat, 2016. "Choosing peers: Homophily and polarization in groups," Journal of Economic Theory, Elsevier, vol. 165(C), pages 152-178.
  • Handle: RePEc:eee:jetheo:v:165:y:2016:i:c:p:152-178 DOI: 10.1016/j.jet.2016.04.005

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    References listed on IDEAS

    1. Kets, Willemien & Sandroni, Alvaro, 2015. "Challenging Conformity: A Case for Diversity," MPRA Paper 68166, University Library of Munich, Germany.
    2. Tanya S. Rosenblat & Markus M. Mobius, 2004. "Getting Closer or Drifting Apart?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 971-1009.
    3. Yeon-Koo Che & Navin Kartik, 2009. "Opinions as Incentives," Journal of Political Economy, University of Chicago Press, vol. 117(5), pages 815-860, October.
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    6. Sergio Currarini & Matthew O. Jackson & Paolo Pin, 2009. "An Economic Model of Friendship: Homophily, Minorities, and Segregation," Econometrica, Econometric Society, vol. 77(4), pages 1003-1045, July.
    7. Dino Gerardi & Leeat Yariv, 2008. "Costly Expertise," American Economic Review, American Economic Association, vol. 98(2), pages 187-193, May.
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    Cited by:

    1. Mihaela van der Schaar & Simpson Zhang, 2015. "From Acquaintances to Friends: Homophily and Learning in Networks," Papers 1510.08103,

    More about this item


    Homophily; Peer groups; Mutually optimal groups; Public goods; Tiebout;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation


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