Network Effects and Welfare Cultures

50 Pages Posted: 20 Jul 2000 Last revised: 11 Oct 2010

See all articles by Marianne Bertrand

Marianne Bertrand

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Erzo F. P. Luttmer

Dartmouth College; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Sendhil Mullainathan

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 1998

Abstract

This paper empirically examines the role of social networks in welfare participation. Social theorists from across the political spectrum have argued that network effects have given rise to a culture of poverty. Empirical work, however, has found it difficult to distinguish the effect of networks from unobservable characteristics of individuals and areas. We use data on language spoken to better infer an individual's network within an area. Individuals who are surrounded by others speaking their language have a larger pool of available contacts. Moreover, the network influence of this pool will depend on their welfare knowledge. We, therefore, focus on the differential effect of increased contact availability: does being surrounded by others who speak the same language increase welfare use more for individuals from high welfare using language groups? The results strongly confirm the importance of networks in welfare participation. We deal with omitted variable bias in several ways. First, our methodology allows us to include local area and language group fixed effects and to control for the direct effect of contact availability; these controls eliminate many of the problems in previous studies. Second, we instrument for contact availability in the neighborhood with the number of one's language group in the entire metropolitan area. Finally, we investigate the effect of removing education controls. Both instrumentation and removal of education controls have little impact on the estimates.

Suggested Citation

Bertrand, Marianne and Luttmer, Erzo F.P. and Mullainathan, Sendhil, Network Effects and Welfare Cultures (December 1998). NBER Working Paper No. w6832. Available at SSRN: https://ssrn.com/abstract=227610

Marianne Bertrand (Contact Author)

University of Chicago - Booth School of Business ( email )

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HOME PAGE: http://gsbwww.uchicago.edu/fac/marianne.bertrand/vita/cv_0604.pdf

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR)

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Erzo F.P. Luttmer

Dartmouth College ( email )

Department of Economics
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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Sendhil Mullainathan

Harvard University - Department of Economics ( email )

Littauer Center
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617-496-2720 (Phone)
617-495-7730 (Fax)

National Bureau of Economic Research (NBER) ( email )

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