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Small neighborhoods


  • Brian Krauth


Traditionally, econometric research on social interaction effects has used fairly large social groups (schools, Census tracts, etc.). However, new data which describes the behavior of much smaller peer groups is becoming available. This paper analyzes the behavior of "small neighborhoods" in the presence of social interaction effects, and finds results which are very different from the existing "large neighborhood" literature (see Brock and Durlauf 2000). First, small neighborhoods will have multiple equilibria for a much larger range of parameter values. Second, the standard estimation procedure, while consistent for large neighborhoods, is inconsistent for small neighborhoods. A consistent indirect inference procedure is developed and applied to data on youth smoking. The results indicate the standard method produces a substantial overstatement in the strength of peer influence.

Suggested Citation

  • Brian Krauth, 2001. "Small neighborhoods," Computing in Economics and Finance 2001 47, Society for Computational Economics.
  • Handle: RePEc:sce:scecf1:47

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    More about this item


    social interactions; neighborhood effects; indirect inference;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • I10 - Health, Education, and Welfare - - Health - - - General


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