Social interactions and spillovers

Antonio Cabrales, Antoni Calvó-Armengol, Yves Zenou

    Research output: Contribution to journalArticleResearchpeer-review

    33 Citations (Scopus)

    Abstract

    The aim of this paper is to provide a tractable model where both socialization (or network formation) and productive efforts can be analyzed simultaneously. This permits a full-fledged equilibrium/welfare analysis of network formation with endogenous productive efforts and heterogeneous agents. We show that there exist two stable interior equilibria, which we can Pareto rank. The socially efficient outcome lies between these two equilibria. When the intrinsic returns to production and socialization increase, all equilibrium actions decrease at the Pareto-superior equilibrium, while they increase at the Pareto-inferior equilibrium. In both cases, the percentage change in socialization effort is higher (in absolute value) than that of the productive effort. © 2010 Elsevier Inc.
    Original languageEnglish
    Pages (from-to)339-360
    JournalGames and Economic Behavior
    Volume72
    Issue number2
    DOIs
    Publication statusPublished - 1 Jun 2011

    Keywords

    • Network formation
    • Peer effects
    • Welfare

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