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Social Interactions and Spillovers

  • Cabrales, Antonio

    ()

    (Universidad Carlos III de Madrid)

  • Calvó-Armengol, Antoni

    (Universitat Autònoma de Barcelona)

  • Zenou, Yves

    ()

    (Dept. of Economics, Stockholm University)

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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Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2010:20.

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Length: 37 pages
Date of creation: 08 Nov 2010
Date of revision:
Handle: RePEc:hhs:sunrpe:2010_0020
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Department of Economics, Stockholm, S-106 91 Stockholm, Sweden

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Web page: http://www.ne.su.se/
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  17. 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.
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