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Multinomial Choice with Social Interactions

Listed author(s):
  • 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
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.
  2. 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.
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  6. 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.
  7. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-161, January.
  8. repec:dgr:rugccs:200214 is not listed on IDEAS
  9. 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.
  10. Edward L. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," NBER Working Papers 5026, National Bureau of Economic Research, Inc.
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  13. Dubin, Jeffrey A & McFadden, Daniel L, 1984. "An Econometric Analysis of Residential Electric Appliance Holdings and Consumption," Econometrica, Econometric Society, vol. 52(2), pages 345-362, March.
  14. 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.
  15. Brock, W.A. & Durlauf, S.N., 1997. "A Formal Model of Theory Vhoice in Science," Working papers 9707, Wisconsin Madison - Social Systems.
  16. Steven N. Durlauf, 1992. "A Theory of Persistent Income Inequality," NBER Working Papers 4056, National Bureau of Economic Research, Inc.
  17. Yannis M. Ioannides & Jeffrey E. Zabel, 2002. "Interaction, Neighborhood Selection and Housing Demand," Discussion Papers Series, Department of Economics, Tufts University 0208, Department of Economics, Tufts University.
  18. 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.
  19. 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.
  20. Brock,W.A. & Durlauf,S.N., 2000. "Discrete choice with social interactions," Working papers 7, Wisconsin Madison - Social Systems.
  21. Ivar Ekeland & James J. Heckman & Lars Nesheim, 2004. "Identification and Estimation of Hedonic Models," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S60-S109, February.
  22. Lawrence F. Katz & Jeffrey R. Kling & Jeffrey B. Liebman, 2001. "Moving to Opportunity in Boston: Early Results of a Randomized Mobility Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 607-654.
  23. C. Monica Capra & Charles A. Holt, 1999. "Coordination," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 630-636, January.
  24. Hoff, Karla & Sen, Arijit, 2004. "Homeownership, community interactions, and segregation," Policy Research Working Paper Series 3316, The World Bank.
  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. Dora L. Costa & Matthew E. Kahn, 2003. "Cowards and Heroes: Group Loyalty in the American Civil War," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 519-548.
  27. Cooper,Russell, 1999. "Coordination Games," Cambridge Books, Cambridge University Press, number 9780521578967, May.
  28. R. D. Plotnick & S. D. Hoffman, "undated". "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.
  29. 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.
  30. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
  31. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
  32. 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.
  33. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-512, March.
  34. 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.
  35. Schmertmann, Carl P., 1994. "Selectivity bias correction methods in polychotomous sample selection models," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 101-132.
  36. Manski, C.F., 1991. "Identification of Endogenous Social Effects: the Reflection Problem," Working papers 9127, Wisconsin Madison - Social Systems.
  37. 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.
  38. 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.
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