89 research outputs found
Favoritism
Favoritism is the act of offering jobs, contracts and resources to members of one's social group in preference to outsiders. Favoritism is widely practiced and this motivates an exploration of its origins and economic consequences. Our main finding is that individuals have an interest to trade favors over time and that this will come at the expense of others, who are outside their group. We show that favoritism is relatively easier to sustain in smaller groups. Favoritism entails social costs as it usually leads to inefficient allocations. However, favoritism can lead to payoff advantages for larger groups. Productivity enhancing investments are larger in groups which practice favoritism. The availability of investment opportunities can reinforce payoff inequalities across groups.Favoritism, nepotism, reciprocity, repeated games
Risk Aversion and International Environmental Agreements
We introduce uncertainty and risk aversion to the study of international environmental agreements. We consider a simple model with identical agents and linear payoffs. We show that a stable treaty with positive action always exists. While uncertainty lowers the action of signatories, we find that it may increase participation. In addition, uncertainty may generate multiple equilibria. A treaty with low action and low participation may coexist with one with high action and high participation. Overall, and despite risk aversion, the impact of uncertainty on welfare may be positive. A reduction in uncertainty may hurt international cooperation.International Environmental Agreements, Risk Aversion, Uncertainty
The Econometrics of Social Networks
In a social network, agents have their own reference group that may influence their behavior. In turn, the agents' attributes and their behavior affect the formation and the structure of the social network. We survey the econometric literature on both aspects of social networks and discuss the identification and estimation issues they raise.Social network, peer effects, identification, network formation, pair-wise regressions, separability, mutual consent
Diversity and Popularity in Social Networks
Homophily, the tendency of linked agents to have similar characteristics, is an important feature of social networks. We present a new model of network formation that allows the linking process to depend on individuals types and study the impact of such a bias on the network structure. Our main results fall into three categories: (i) we compare the distributions of intra- and inter-group links in terms of stochastic dominance, (ii) we show how, at the group level, homophily depends on the groups size and the details of the formation process, and (iii) we understand precisely the determinants of local homophily at the individual level. Especially, we find that popular individuals have more diverse networks. Our results are supported empirically in the AddHealth data looking at networks of social connections between boys and girls.Social networks, Network formation, Homophily, Diversity
Strategic Interaction and Networks
This paper brings a general network analysis to a wide class of economic games. A network, or interaction matrix, tells who directly interacts with whom. A major challenge is determining how network structure shapes overall outcomes. We have a striking result. Equilibrium conditions depend on a single number: the lowest eigenvalue of a network matrix. Combining tools from potential games, optimization, and spectral graph theory, we study games with linear best replies and characterize the Nash and stable equilibria for any graph and for any impact of playersâ actions. When the graph is sufficiently absorptive (as measured by this eigenvalue), there is a unique equilibrium. When it is less absorptive, stable equilibria always involve extreme play where some agents take no actions at all. This paper is the first to show the importance of this measure to social and economic outcomes, and we relate it to different network link patterns.Networks, potential games, lowest eigenvalue, stable equilibria, asymmetric equilibria
Identification of Peer Effects through Social Networks
We provide new results regarding the identification of peer effects. We consider an extended version of the linear-in-means model where each individual has his own specific reference group. Interactions are thus structured through a social network. We assume that correlated unobservables are either absent, or treated as fixed effects at the component level. In both cases, we provide easy-to-check necessary and sufficient conditions for identification. We show that endogenous and exogenous effects are generally identified under network interaction, although identification may fail for some particular structures. Monte Carlo simulations provide an analysis of the effects of some crucial characteristics of a network (i.e., density, intransitivity) on the estimates of social effects. Our approach generalizes a number of previous results due to Manski (1993), Moffitt (2001), and Lee (2006).Social networks, Peer effects, identification, reflection problem
Manufacturing Doubt
In their persistent fight to affect regulation, firms have developed specific strategies to exploit scientific uncertainty. They have spent large amounts of money to generate and publicize favorable scientific findings, to discredit and downplay unfavorable ones and to shape the publicâs perceptions through large-scale communication campaigns. We develop a new model to study the interplay between scientific uncertainty, firmsâ communication and public policies. The government is benevolent but populist and maximizes social welfare as perceived by citizens. The industry can provide costly evidence that its activity is not harmful. Citizens incorrectly treat the industryâs information on par with scientific knowledge. We characterize the industryâs optimal communication policy. As scientists become increasingly convinced that the industrial activity is harmful, firms first devote more and more resources to reassure people. When scientistsâ beliefs reach a critical threshold, however, the industry stops its efforts abruptly. We then study the impact of firmsâ communication on scientific funding. A populist government may, perversely, want to support research to better allow firms to miscommunicate. Populist policies can entail significant welfare losses. Establishing an independent funding agency always reduces these losses and may lead to under- or over- investment in research with respect to the first-best
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