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Social Networks and the Aggregation on Individual Decisions

  • D. Lee Heavner
  • Lance Lochner

This paper analyzes individual decisions to participate in an activity and the aggregation of those decisions when individuals gather information about the outcomes and choices of (a few) others in their social network. In this environment, aggregate participation rates are generally inefficient. Increasing the size of social networks does not necessarily increase efficiency and can lead to less efficient long-run outcomes. Both subsidies for participation and penalties for non-participation can increase participation rates, though not necessarily by the same amount. Punishing non-participation has much greater effects on participation rates than rewarding participation when current rates are very low. A program that provides youth with mentors who have participated themselves can increase participation rates, especially when those rates are low. Finally, communities plagued by the flight of successful participants will experience lower short- and long-run participation rates.

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File URL: http://www.nber.org/papers/w8979.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8979.

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Date of creation: Jun 2002
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Handle: RePEc:nbr:nberwo:8979
Note: CH LS
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  9. Timothy G. Conley & Christopher R. Udry, 2005. "Learning about a new technology: pineapple in Ghana," Proceedings, Federal Reserve Bank of San Francisco.
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  13. Julian R. Betts, 1996. "What Do Students Know about Wages? Evidence from a Survey of Undergraduates," Journal of Human Resources, University of Wisconsin Press, vol. 31(1), pages 27-56.
  14. Lance Lochner, 2001. "A Theoretical and Empirical Study of Individual Perceptions of the Criminal Justice System," RCER Working Papers 483, University of Rochester - Center for Economic Research (RCER).
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