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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. William A. Brock, 1993. "Pathways to randomness in the economy: Emergent nonlinearity and chaos in economics and finance," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 8(1), pages 3-55.
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  7. Yannis M Ioannides & Jeffrey E Zabel, 2002. "Interactions, Neighborhood Selection, and Housing Demand," Working Papers 02-19, Center for Economic Studies, U.S. Census Bureau.
  8. Brock, William A. & Durlauf, Steven N., 2001. "Interactions-based models," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 54, pages 3297-3380 Elsevier.
  9. William A. Brock & Steven N. Durlauf, 1997. "A Formal Model of Theory Choice in Science," Research in Economics 97-04-031e, Santa Fe Institute.
  10. Karla Hoff & Arijit Sen, 2005. "Homeownership, Community Interactions, and Segregation," American Economic Review, American Economic Association, vol. 95(4), pages 1167-1189, September.
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  13. Ekeland, Ivar & Heckman, James J. & Nesheim, Lars, 2004. "Identification and Estimation of Hedonic Models," Economics Papers from University Paris Dauphine 123456789/6486, Paris Dauphine University.
  14. Brock,W.A. & Durlauf,S.N., 2002. "A multinomial choice model of neighborhood effects," Working papers 4, Wisconsin Madison - Social Systems.
  15. 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.
  16. Durlauf, Steven N, 1996. " A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
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  18. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-12, March.
  19. 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.
  20. Brock,W.A. & Durlauf,S.N., 2000. "Discrete choice with social interactions," Working papers 7, Wisconsin Madison - Social Systems.
  21. Lundberg, S. & Startz, R., 1992. "On the Persistence of Racial Inequality," Working Papers 92-04, University of Washington, Department of Economics.
  22. 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.
  23. 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.
  24. 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.
  25. Arrow, Kenneth J, 1994. "Methodological Individualism and Social Knowledge," American Economic Review, American Economic Association, vol. 84(2), pages 1-9, May.
  26. Yannis M. Ioannides & Jeffrey E. Zabel, 2003. "Neighbourhood effects and housing demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(5), pages 563-584.
  27. Schmertmann, Carl P., 1994. "Selectivity bias correction methods in polychotomous sample selection models," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 101-132.
  28. Dubin, Jeffrey A & McFadden, Daniel L, 1984. "An Econometric Analysis of Residential Electric Appliance Holdings and Consumption," Econometrica, Econometric Society, vol. 52(2), pages 345-62, March.
  29. Francis Vella, 1998. "Estimating Models with Sample Selection Bias: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 127-169.
  30. C. Monica Capra & Charles A. Holt, 1999. "Coordination," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 630-636, January.
  31. 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.
  32. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
  33. 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.
  34. Dora L. Costa & Matthew E. Kahn, 2001. "Cowards and Heroes: Group Loyalty in the American Civil War," NBER Working Papers 8627, National Bureau of Economic Research, Inc.
  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. 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.
  37. 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.
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