Urban Interactions

65 Pages Posted: 17 Nov 2017

See all articles by Jun Sung Kim

Jun Sung Kim

Monash University - Department of Econometrics & Business Statistics

Eleonora Patacchini

Cornell University

Pierre M. Picard

Centre de Recherche en Économie Appliquée (CREA); Universite du Luxembourg

Yves Zenou

Monash University - Department of Economics; Stockholm University; Research Institute of Industrial Economics (IUI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: November 2017

Abstract

This paper studies social-tie formation when individuals care about the geographical location of other individuals. In our model, the intensity of social interactions can be chosen at the same time as friends. We characterize the equilibrium in terms of both social interactions and social capital (the value of social interactions offered by each agent) for a general distribution of individuals in the urban geographical space. We show that greater geographical dispersion decreases the incentives to socially interact. We also show that the equilibrium frequency of interactions is lower than the effcient one. Using a unique geo-coded dataset of friendship networks among adolescents in the United States, we estimate the model and validate that agents interact less than the social first best optimum. Our policy analysis suggests that, given the same cost, subsidizing social interactions yields a higher total welfare than subsidizing transportation costs.

Keywords: policies., Social interactions, urban economic

JEL Classification: R1, R23, Z13

Suggested Citation

Kim, Jun Sung and Patacchini, Eleonora and Picard, Pierre M. and Zenou, Yves, Urban Interactions (November 2017). CEPR Discussion Paper No. DP12432, Available at SSRN: https://ssrn.com/abstract=3071064

Jun Sung Kim (Contact Author)

Monash University - Department of Econometrics & Business Statistics ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Eleonora Patacchini

Cornell University ( email )

Ithaca, NY 14853
United States

Pierre M. Picard

Centre de Recherche en Économie Appliquée (CREA) ( email )

Campus Limpertsberg
162A, avenue de la Faïencerie
Luxembourg, 1511
Luxembourg

Universite du Luxembourg

L-1511 Luxembourg
Luxembourg

Yves Zenou

Monash University - Department of Economics ( email )

Australia

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Research Institute of Industrial Economics (IUI) ( email )

P.O. Box 5501
S-114 85 Stockholm
Sweden

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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