Equilibrium Homophily in Networks

50 Pages Posted: 1 Nov 2018

Date Written: September 01, 2018

Abstract

I look at the equilibrium effects of homophily in network formation games having positive externalities. I show that very weak preferences for network effects (such as preference for being part of a clique) may result in very high levels of homophily at equilibrium. I present an empirical procedure that allows an evaluation of the role of network effects on the observed level of homophily in the data. I apply my method to the formation of friendship networks in the USA. I show that the focus on a random utility model implies that network effects are small and have a negligible contribution to the observed racial homophily in friendship networks.

Keywords: Homophily, Network Formation, Supermodular Games, Approximate Bayesian Computation

JEL Classification: D85, C11, C15, C72

Suggested Citation

Boucher, Vincent, Equilibrium Homophily in Networks (September 01, 2018). Available at SSRN: https://ssrn.com/abstract=3264071 or http://dx.doi.org/10.2139/ssrn.3264071

Vincent Boucher (Contact Author)

Université Laval ( email )

2214 Pavillon J-A. DeSeve
Quebec, Quebec G1K 7P4
Canada

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