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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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  1. Abhijit Banerjee & Drew Fudenberg, 2010. "Word of Mouth Learning," Levine's Working Paper Archive 723, David K. Levine.
  2. Manski, Charles F., 1993. "Dynamic choice in social settings : Learning from the experiences of others," Journal of Econometrics, Elsevier, vol. 58(1-2), pages 121-136, July.
  3. Fudenberg, Drew & Ellison, Glenn, 1995. "Word-of-Mouth Communication and Social Learning," Scholarly Articles 3196300, Harvard University Department of Economics.
  4. Allison, G. & Fudenberg, D., 1992. "Rules of Thumb for Social Learning," Working papers 92-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Marianne Bertrand & Erzo F.P. Luttmer & Sendhil Mullainathan, 1998. "Network Effects and Welfare Cultures," NBER Working Papers 6832, National Bureau of Economic Research, Inc.
  6. Foster, Andrew D & Rosenzweig, Mark R, 1995. "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1176-1209, December.
  7. Duflo, Esther & Saez, Emmanuel, 2002. "Participation and investment decisions in a retirement plan: the influence of colleagues' choices," Journal of Public Economics, Elsevier, vol. 85(1), pages 121-148, July.
  8. Conley, T.G. & Udry, C.R., 2000. "Learning about a New Technology: Pineapple in Ghana," Papers 817, Yale - Economic Growth Center.
  9. 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.
  10. J. Dominitz & C. F. Manski, . "Eliciting student expectations of the returns to schooling," Institute for Research on Poverty Discussion Papers 1049-94, University of Wisconsin Institute for Research on Poverty.
  11. Timothy Conley & Udry Christopher, 2001. "Social Learning Through Networks: The Adoption of New Agricultural Technologies in Ghana," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 668-673.
  12. 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).
  13. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2001. "Social Interaction and Stock-Market Participation," NBER Working Papers 8358, National Bureau of Economic Research, Inc.
  14. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  15. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
  16. 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.
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