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Dynamic Linear Economies with Social Interactions

  • ÖZGÜR, Onur
  • BISIN, Alberto

Social interactions arguably provide a rationale for several important phenomena, from smoking and other risky behavior in teens to e.g., peer effects in school performance. We study social interactions in dynamic economies. For these economies, we provide existence (Markov Perfect Equilibrium in pure strategies), ergodicity, and welfare results. Also, we characterize equilibria in terms of agents' policy function, spatial equilibrium correlations and social multiplier effects, depending on the nature of interactions. Most importantly, we study formally the issue of the identification of social interactions, with special emphasis on the restrictions imposed by dynamic equilibrium conditions.

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Paper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 04-2011.

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Length: 87 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:mtl:montec:04-2011
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