Social Networks and the Aggregation on Individual Decisions

25 Pages Posted: 7 Jun 2002 Last revised: 27 Oct 2010

See all articles by D. Lee Heavner

D. Lee Heavner

Analysis Group, Inc.

Lance Lochner

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

Date Written: June 2002

Abstract

This paper analyzes individual decisions to participate in an activity and the aggregation of those decisions when individuals gather information about the outcomes and choices of (a few) others in their social network. In this environment, aggregate participation rates are generally inefficient. Increasing the size of social networks does not necessarily increase efficiency and can lead to less efficient long-run outcomes. Both subsidies for participation and penalties for non-participation can increase participation rates, though not necessarily by the same amount. Punishing non-participation has much greater effects on participation rates than rewarding participation when current rates are very low. A program that provides youth with mentors who have participated themselves can increase participation rates, especially when those rates are low. Finally, communities plagued by the flight of successful participants will experience lower short- and long-run participation rates.

Suggested Citation

Heavner, D. Lee and Lochner, Lance, Social Networks and the Aggregation on Individual Decisions (June 2002). NBER Working Paper No. w8979. Available at SSRN: https://ssrn.com/abstract=315329

D. Lee Heavner

Analysis Group, Inc. ( email )

333 South Hope Street
27th Floor
Los Angeles, CA
United States

Lance Lochner (Contact Author)

University of Western Ontario - Department of Economics ( email )

London, Ontario N6A 5B8
Canada

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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