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Social Interactions in Demand

  • Grodner, Andrew

    ()

    (East Carolina University)

  • Kniesner, Thomas J.

    ()

    (Syracuse University)

We examine theoretically demand in a two-good economy where the demand of one good is influenced by either a spillover effect in the form of an externality from other consumers’ choices and or a conformity effect representing a need for making similar choices as others. A positive spillover effect increases the demand for the good with interactions, and a conformity effect makes the demand curve pivot around the average market demand to make demand less price sensitive. The collateral implication is that spillover in consumption increases the associated derived demand for labor and conformity in consumption makes the associated derived demand for labor less elastic. Finally, we also demonstrate how the presence of a good with social interactions affects the demand for the good without social interactions and the associated demand for the labor producing the non-interactions good.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3656.

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Length: 14 pages
Date of creation: Aug 2008
Date of revision:
Publication status: published in: Foundations and Trends in Microeconomics, 2010, 6 (4), 265-366
Handle: RePEc:iza:izadps:dp3656
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  1. Andrew Grodner & Thomas J. Kniesner, 2006. "Social Interactions in Labor Supply," Journal of the European Economic Association, MIT Press, vol. 4(6), pages 1226-1248, December.
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