Estimating the Neighborhood Influence on Decision Makers: Theory and an Application on the Analysis of Innovation Decisions

23 Pages Posted: 8 Nov 2001

See all articles by Nikolaus Hautsch

Nikolaus Hautsch

University of Vienna - Department of Statistics and Operations Research; Center for Financial Studies (CFS); Vienna Graduate School of Finance (VGSF)

Stefan Klotz

University of Konstanz - Department of Economics

Abstract

When making decisions, agents tend to make use of decisions others have made in similar situations. Ignoring this behavior in empirical models can be interpreted as a problem of omitted variables. We suggest a possibility of integrating such outside influences into models of discrete choice by defining an abstract social space in which agents with similar characteristics are neighbors who possibly influence each other. Monte Carlo simulations show the small sample properties of the proposed spatial binary choice model. When applying the estimator to innovation decisions data of German firms, we find evidence for the existence of neighborhood effects.

Keywords: decision models, discrete choice, spatial econometrics, social space, Euclidean measure

JEL Classification: C21, C25, C44, O33, R15

Suggested Citation

Hautsch, Nikolaus and Klotz, Stefan, Estimating the Neighborhood Influence on Decision Makers: Theory and an Application on the Analysis of Innovation Decisions. Journal of Economic Behavior and Organization, Vol 52, pp. 97-113, 2004. Available at SSRN: https://ssrn.com/abstract=289657 or http://dx.doi.org/10.2139/ssrn.289657

Nikolaus Hautsch (Contact Author)

University of Vienna - Department of Statistics and Operations Research ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

Center for Financial Studies (CFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Stefan Klotz

University of Konstanz - Department of Economics

Box D124 Universitaetsstr. 10
D-78457 Konstanz
Germany

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