The Empirical Content of Models with Multiple Equilibria in Economies with Social Interactions

68 Pages Posted: 11 Jul 2011

See all articles by Alberto Bisin

Alberto Bisin

New York University (NYU) - Department of Economics; New York University (NYU) - Center for Experimental Social Science (CESS); National Bureau of Economic Research (NBER)

Andrea Moro

Vanderbilt University - College of Arts and Science - Department of Economics

Giorgio Topa

Federal Reserve Bank of New York

Date Written: July 2011

Abstract

We study a general class of models with social interactions that might display multiple equilibria. We propose an estimation procedure for these models and evaluate its efficiency and computational feasibility relative to different approaches taken to the curse of dimensionality implied by the multiplicity. Using data on smoking among teenagers, we implement the proposed estimation procedure to understand how group interactions affect health-related choices. We find that interaction effects are strong both at the school level and at the smaller friends-network level. Multiplicity of equilibria is pervasive at the estimated parameter values, and equilibrium selection accounts for about 15 percent of the observed smoking behavior. Counterfactuals show that student interactions, surprisingly, reduce smoking by approximately 70 percent with respect to the equilibrium smoking that would occur without interactions.

Suggested Citation

Bisin, Alberto and Moro, Andrea and Topa, Giorgio, The Empirical Content of Models with Multiple Equilibria in Economies with Social Interactions (July 2011). NBER Working Paper No. w17196. Available at SSRN: https://ssrn.com/abstract=1882164

Alberto Bisin (Contact Author)

New York University (NYU) - Department of Economics

14 West 4th Street
New York, NY 10012
United States

New York University (NYU) - Center for Experimental Social Science (CESS) ( email )

One Washington Place
New York, NY 10003
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National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Andrea Moro

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

Giorgio Topa

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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