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Multinomial Choice with Social Interactions

  • William A. Brock
  • Steven N. Durlauf

This paper develops a model of individual decisionmaking in the presence of social interactions when the number of available choices is finite. We show how a multinomial logit model framework may be used to model such decisions in a way that permits a tight integration of theory and econometrics. Conditions are given under which aggregate choice behavior in a population exhibits multiple self-consistent equilibria. An econometric version of the model is shown to be identified under relatively weka conditions. That analysis is extended to allow for general error distributions and some preliminary ways to account for the endogeneity of group memberships are developed.

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File URL: http://www.nber.org/papers/t0288.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0288.

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Date of creation: Mar 2003
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Handle: RePEc:nbr:nberte:0288
Note: TWP
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  1. Graham, Bryan S. & Hahn, Jinyong, 2005. "Identification and estimation of the linear-in-means model of social interactions," Economics Letters, Elsevier, vol. 88(1), pages 1-6, July.
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  9. Glaeser, Edward L & Sacerdote, Bruce & Scheinkman, Jose A, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 507-48, May.
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  11. Ioannides, Yannis M. & Zabel, Jeffrey E., 2008. "Interactions, neighborhood selection and housing demand," Journal of Urban Economics, Elsevier, vol. 63(1), pages 229-252, January.
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  13. repec:att:wimass:9127 is not listed on IDEAS
  14. Brock,W.A. & Durlauf,S.N., 2002. "A multinomial choice model of neighborhood effects," Working papers 4, Wisconsin Madison - Social Systems.
  15. Donna Ginther & Robert Haveman & Barbara Wolfe, 2000. "Neighborhood Attributes as Determinants of Children's Outcomes: How Robust Are the Relationships?," Journal of Human Resources, University of Wisconsin Press, vol. 35(4), pages 603-642.
  16. C. Monica Capra & Charles A. Holt, 1999. "Coordination," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 630-636, January.
  17. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  18. Karla Hoff & Arijit Sen, 2005. "Homeownership, Community Interactions, and Segregation," American Economic Review, American Economic Association, vol. 95(4), pages 1167-1189, September.
  19. Glenn C. Loury, 1976. "A Dynamic Theory of Racial Income Differences," Discussion Papers 225, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Roland Benabou, 1991. "Workings of a City: Location, Education, and Production," NBER Technical Working Papers 0113, National Bureau of Economic Research, Inc.
  21. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
  22. R. D. Plotnick & S. D. Hoffman, . "The Effect of Neighborhood Characteristics on Young Adult Outcomes: Alternative Estimates," Institute for Research on Poverty Discussion Papers 1106-96, University of Wisconsin Institute for Research on Poverty.
  23. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-12, March.
  24. Steven N. Durlauf, 1992. "A Theory of Persistent Income Inequality," NBER Working Papers 4056, National Bureau of Economic Research, Inc.
  25. Anna Aizer & Janet Currie, 2002. "Networks or Neighborhoods? Correlations in the Use of Publicly-Funded Maternity Care in California," NBER Working Papers 9209, National Bureau of Economic Research, Inc.
  26. Brock, William A & Durlauf, Steven N, 2001. "Discrete Choice with Social Interactions," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 235-60, April.
  27. Arrow, Kenneth J, 1994. "Methodological Individualism and Social Knowledge," American Economic Review, American Economic Association, vol. 84(2), pages 1-9, May.
  28. William A. Brock & Steven N. Durlauf, 1999. "A formal model of theory choice in science," Economic Theory, Springer, vol. 14(1), pages 113-130.
  29. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
  30. Lundberg, S. & Startz, R., 1992. "On the Persistence of Racial Inequality," Discussion Papers in Economics at the University of Washington 92-04, Department of Economics at the University of Washington.
  31. William A. Brock & Steven N. Durlauf, 2000. "Interactions-Based Models," Working Papers 00-05-028, Santa Fe Institute.
  32. Kooreman, Peter & Soetevent, Adriaan, 2002. "A discrete choice model with social interactions: an analysis of high school teen behavior," CCSO Working Papers 200214, University of Groningen, CCSO Centre for Economic Research.
  33. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 237-64, April.
  34. Mary Corcoran & Roger Gordon & Deborah Laren & Gary Solon, 1992. "The Association between Men's Economic Status and Their Family and Community Origins," Journal of Human Resources, University of Wisconsin Press, vol. 27(4), pages 575-601.
  35. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 531-42, July.
  36. Borsch-Supan, Axel, 1990. "On the compatibility of nested logit models with utility maximization," Journal of Econometrics, Elsevier, vol. 43(3), pages 373-388, March.
  37. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
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