Social Networking and Individual Outcomes: Individual Decisions and Market Context

29 Pages Posted: 21 Nov 2005

Date Written: October 2005


This paper examines social interactions when social networking is endogenous. It employs a linear-quadratic model that accommodates contextual effects, and endogenous local interactions, that is where individuals react to the decisions of their neighbors, and endogenous global ones, where individuals react to the mean decision in the economy, both with a lag. Unlike the simple V AR(1) structural model of individual interactions, the planner's problem here involves intertemporal optimization and leads to a system of linear difference equations with expectations. It highlights an asset-like property of socially optimal outcomes in every period which helps characterize the shadow values of connections among agents. Endogenous networking is easiest to characterize when individuals choose weights of social attachment to other agents. It highlights a simultaneity between decisions and patterns of social attachment. The paper also poses the inverse social interactions problem, asking whether it is possible to design a social network whose agents' decisions will obey an arbitrarily specified variance covariance matrix.

Keywords: Social Interactions, Social Networks, Neighborhood Effects, Endogenous Networking, Social Intermediation, Econometric Identification, Strong versus Weak Ties, Value of Social Connections

JEL Classification: D85, A14, J0

Suggested Citation

Ioannides, Yannis M. and Soetevent, Adriaan R., Social Networking and Individual Outcomes: Individual Decisions and Market Context (October 2005). NET Institute Working Paper No. 05-16, Available at SSRN: or

Yannis M. Ioannides (Contact Author)

Tufts University ( email )

Medford, MA 02155
United States

Adriaan R. Soetevent

University of Groningen ( email )

P.O. Box 800
9700 AV Groningen
++ 31 50 363 7018 (Phone)


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