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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
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  1. William A. Brock & Steven N. Durlauf, 2002. "A Multinomial-Choice Model of Neighborhood Effects," American Economic Review, American Economic Association, vol. 92(2), pages 298-303, May.
  2. 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.
  3. Edward E. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," Harvard Institute of Economic Research Working Papers 1738, Harvard - Institute of Economic Research.
  4. Arrow, Kenneth J, 1994. "Methodological Individualism and Social Knowledge," American Economic Review, American Economic Association, vol. 84(2), pages 1-9, May.
  5. 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.
  6. Roland Benabou, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 619-652.
  7. Schmertmann, Carl P., 1994. "Selectivity bias correction methods in polychotomous sample selection models," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 101-132.
  8. Cooper,Russell, 1999. "Coordination Games," Cambridge Books, Cambridge University Press, number 9780521578967, june. pag.
  9. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  10. W. A. Brock, 1993. "Pathways to Randomness in the Economy: Emergent Nonlinearity and Chaos in Economics and Finance," Working Papers 93-02-006, Santa Fe Institute.
  11. 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.
  12. 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.
  13. William A. Brock & Steven N. Durlauf, 2001. "Discrete Choice with Social Interactions," Review of Economic Studies, Oxford University Press, vol. 68(2), pages 235-260.
  14. 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.
  15. Hoff, Karla & Sen, Arijit, 2004. "Homeownership, community interactions, and segregation," Policy Research Working Paper Series 3316, The World Bank.
  16. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
  17. Brock, W.A. & Durlauf, S.N., 1997. "A Formal Model of Theory Vhoice in Science," Working papers 9707, Wisconsin Madison - Social Systems.
  18. Ivar Ekeland & James J. Heckman & Lars Nesheim, 2003. "Identification and Estimation of Hedonic Models," CESifo Working Paper Series 1031, CESifo Group Munich.
  19. Cooper,Russell, 1999. "Coordination Games," Cambridge Books, Cambridge University Press, number 9780521570176, june. pag.
  20. C. Monica Capra & Charles A. Holt, 1999. "Coordination," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 630-636, January.
  21. Roland Bénabou, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Oxford University Press, vol. 63(2), pages 237-264.
  22. Yannis M. Ioannides & Jeffrey E. Zabel, 2000. "Neighborhood Effects and Housing Demand," Discussion Papers Series, Department of Economics, Tufts University 0012, Department of Economics, Tufts University.
  23. 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.
  24. Lawrence F. Katz & Jeffrey R. Kling & Jeffrey B. Liebman, 2000. "Moving to Opportunity in Boston: Early Results of a Randomized Mobility Experiment," NBER Working Papers 7973, National Bureau of Economic Research, Inc.
  25. 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.
  26. 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.
  27. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-12, March.
  28. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 115-136, Summer.
  29. 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.
  30. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
  31. 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.
  32. 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.
  33. Datcher, Linda P, 1982. "Effects of Community and Family Background on Achievement," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 32-41, February.
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  36. repec:dgr:rugccs:200214 is not listed on IDEAS
  37. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 531-542.
  38. 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.
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