Multinomial Choice with Social Interactions: Occupations in Victorian London
30 Pages Posted: 26 Jul 2017
Date Written: July 7, 2017
This paper presents a multinomial choice model with social interactions in an incomplete network. Individuals form heterogenous rational expectations about the behavior of peers by taking into account their characteristics and the strength of their ties. We show the network conditions under which the endogenous and exogenous effects can be separately identified even in the presence of correlated effects at the group level. Conditions for unique equilibrium are established. We apply our empirical model to occupational choice in nineteenth century London. Thanks to a newly constructed dataset, we use ecclesiastical parish boundaries as proxies for social groups and geographic distances between individuals as measures of the strength of their ties. Our results show that endogenous network effects were important above and beyond correlated and exogenous effects. We uncover distinct impact by occupation type: peers in professional and industrial occupations have a positive impact on the likelihood of following a similar occupation while commercial have a negative one.
Keywords: Social interactions, Heterogeneous beliefs, Multinomial choice, Occupational choice
JEL Classification: C25, C31, J24, N93
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