Linear Social Interactions Models

57 Pages Posted: 12 Jul 2013

See all articles by Lawrence E. Blume

Lawrence E. Blume

Cornell University - Department of Economics; Institute for Advanced Studies (IHS); Santa Fe Institute

William A. Brock

University of Wisconsin, Madison - Department of Economics; University of Missouri at Columbia - Department of Economics

Steven N. Durlauf

University of Chicago; National Bureau of Economic Research (NBER)

Rajshri Jayaraman

ESMT European School of Management and Technology

Date Written: July 2013

Abstract

This paper provides a systematic analysis of identification in linear social interactions models. This is both a theoretical and an econometric exercise as the analysis is linked to a rigorously delineated model of interdependent decisions. We develop an incomplete information game that describes individual choices in the presence of social interactions. The equilibrium strategy profiles are linear. Standard models in the empirical social interactions literature are shown to be exact or approximate special cases of our general framework, which in turn provides a basis for understanding the microeconomic foundations of those models. We consider identification of both endogenous (peer) and contextual social effects under alternative assumptions on a priori information about network structure available to an analyst, and contrast the informational content of individual-level and aggregated data. Finally, we discuss potential ramifications for identification of endogenous group selection and differences between the information sets of analysts and agents.

Suggested Citation

Blume, Lawrence E. and Brock, William A. and Durlauf, Steven N. and Jayaraman, Rajshri, Linear Social Interactions Models (July 2013). NBER Working Paper No. w19212. Available at SSRN: https://ssrn.com/abstract=2292832

Lawrence E. Blume (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
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Institute for Advanced Studies (IHS)

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Santa Fe Institute

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William A. Brock

University of Wisconsin, Madison - Department of Economics ( email )

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Madison, WI 53706
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608-263-6655 (Phone)
608-263-3876 (Fax)

University of Missouri at Columbia - Department of Economics ( email )

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Steven N. Durlauf

University of Chicago ( email )

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Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rajshri Jayaraman

ESMT European School of Management and Technology ( email )

Schlossplatz 1
Berlin, Berlin 10178
Germany

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