Social Interactions and Economic Behavior

This paper is a critical introduction to the new wave of economic literature on the effect of social interactions on individual behavior and aggregate economic outcomes. I refer to this research program, also known as new social economics, as the socioeconomic analysis of behavior, to distinguish it from the more popular economic analysis of social behavior. I discuss the main features of so-called interactions-based models, and I show how they help us to understand substantive economic phenomena. In order to restrict the focus, I choose five possible applications: matching in the labor market, welfare participation, poverty traps and inequality, investor behavior, and consumer behavior. Then I dwell upon two key undecided questions: (i) why economic behavior is affected by social interactions, and (ii) how the social context is shaped by rational individuals. Finally, I briefly discuss the main empirical routes so far used.new social economics, social interactions, neighborhood effects, social networks, social norms, social multiplier

Discrete Choice with Social Interactions and Endogenous Memberships

This paper tackles the issue of self-selection in social interactions models. I develop a theory of sorting and behavior, when the latter is subject to social influences, extending the model developed by Brock and Durlauf (2001a, 2003) to allow for equilibrium group formation. Individuals choose a group, and a behavior subject to an endogenous social effect. The latter turns out to be a segregating force, and stable equilibria are stratified. The sorting process may induce, inefficiently, multiple behavioral equilibria. Such a theory serves as a means to solve identification and selection problems that may undermine the empirical detection of social effects on individual behavior. I exploit the theoretical model to build a nonlinear (in the social effect) selection correction term. Such a term allows identification, and solves the selection problem that arises when individuals can choose the group whose effect the researcher is trying to disentangle. The resulting econometric model, although relying on strict parametric assumptions, indicates a viable alternative when reliable instrumental variables are not available, or randomized experiments not possible.social interactions, neighborhood effects, sorting, self-selection, nested logit, identification of social effects

Labor Supply Elasticities: Can Micro Be Misleading for Macro?

In this paper we compare “micro” and “macro” labor supply elasticities in a MaCurdy-type equation. Using PSID data, we obtain the micro elasticity from standard panel techniques, and the macro elasticity from the time series generated by aggregating individuals every year. This procedure relies on the exact aggregation of first-order conditions in a life-cycle model with home production. We find an individual elasticity of about 0.1, a low value in line with mainstream microeconometric studies, and an aggregate elasticity of about 1, a much larger value often assumed in calibration studies. This discrepancy is not due to aggregation bias: it is due to the fact that individual and total hours are different variables, with the extensive margin that empirically dominates. A broader implication of our result is that micro evidence is not always appropriate for calibrating an aggregate model economyelasticity of labor supply, aggregation, calibration

The Social Multiplier of Tax Evasion: Evidence from Italian Audit Data

We investigate the role of individual interdependencies in tax evasion, arising from congestion on the auditing resources available to local tax authorities. Identification exploits a novel method based on comparison of the variance of individual behavior — concealed income in this case — at different levels of aggregation, within different subpopulations (Graham, 2008). This method allows us to mitigate some of the most severe problems that surround identification of neighbourhood effects, at the cost of identifying restrictions that arise naturally from our model. We employ a unique dataset of tax audits to about 75,000 self-employed individuals in Italy. Surprisingly, this sample is not statistically different from a random sample of taxpayers. We find a social multiplier of about 3, meaning that the equilibrium response to a shock that induces an exogenous variation in mean concealed income — such as tougher or looser tax enforcement — is about three times the initial average responsesocial interactions, social multiplier, tax evasion, tax compliance, excess variance

Searching for the Best Neighborhood: Mobility and Social Interactions

The paper seeks to contribute to the social interactions literature by exploiting data on individual's self- selection into neighborhoods. We study a model in which households search for the best location in the presence of neighborhood effects in the formation of children's human capital and in the process of cultural transmission. We use micro data from the PSID which we have merged, using geocodes, with contextual information at the leves of census tracts and of counties from the 2000 US Census. We control for numerous individual characteristics and neighborhood attributes and find, consistently with neighborhood effects models, that households with children, but not those without, are more likely to move out of neighborhoods whose attributes are not favorable to the productin of human capital and the transmission of parents' cultural traits, and to move into neighborhoods which instead exhibit desireable such attributes.

Searching for the Best Neighborhood: Mobility and Social Interactions

The paper seeks to contribute to the social interactions literature by exploiting data on individuals’ self-selection into neighborhoods. We study a model in which households search for the best location in the presence of neighborhood effects in the formation of children’s human capital and in the process of cultural transmission. We use micro data from the PSID which we have merged, using geocodes, with contextual information at the levels of census tracts and of counties from the 2000 US Census. We control for numerous individual characteristics and neighborhood attributes and find, consistently with neighbourhood effects models, that households with children, but not those without, are more likely to move out of neighborhoods whose attributes are not favorable to the production of human capital and the transmission of parents’ cultural traits, and to move into neighborhoods which instead exhibit desirable such attributes.

Welfare Stigma or Information Sharing? Decomposing Social Interactions Effects in Social Benefit Use

Empirical research has shown that social interactions affect the use of public benefits, thus providing evidence in favor of the idea of “welfare cultures.” In this paper we take the next crucial step by separately identifying the role of social stigma and information sharing in welfare participation, using Census data. We argue that the stigma vs. information distinction has possibly important consequences. Separate identification exploits the asymmetry between association and mere spatial proximity: we asume that while information is transmitted within groups, stigma works across groups as well. We also allow for heterogeneity of social effects across different race-ethnic groups and find non-trivial differences. We find that while the information channel is more important than stigma, White Americans appear to perceive stigma more from otherWhite Americans than by other races, and Black and Hispanic Americans appear to respond principally to stigma from external groupssocial interactions, neighborhood effects, welfare stigma

Partecipazione con avversione al rischio e coordination failures: riconsiderazione e tentativo di sintesi dei modelli di Weitzman e Meade

Recently, within several debates, the idea of a participatory economy has been recovered as a viable solution towards labour and firm’s costs flexibility to cope with unemployment and the increasingly competitive economic environment. This paper is an attempt to integrate the main recent models of participatory economy, i.e. Weitzman’s share economy and Meade’s partnership economy. This in order to throw light on some microeconomic conditions which appear to be not thoroughly examined and which could make not smoothly viable the path of a share economy. We introduce workers’ risk aversion in Weitzman’s model showing that with Von Neuman-Morgestern utility, worker’s preference for a share contract rather than a traditional wage one depends on the (mainly subjective) probability of unemployment in the two systems and that a risk premium may emerge which increases marginal cost of labour in a share system. On the other hand the firm would prefer the share solution only if an improvement in its expected revenue occurs as a consequence of it, e.g. through higher labour productivity or lower transaction costs. The increase in expected revenue must be sufficient to finance the risk premium through the whole lenght of the share labour contract. Since this condition could be hard to come true (inreasingly with the degree of participation) and thus Weitzman’s share economy not viable in a risk-aversion world, we argue that Meade’s model (which includes some degree of management sharing) is a good solution to “institutionalise” the risk premium. We show the intrinsic equivalence — with respect to labour compensation — of the two models, a property which allows the integration to solve the risk problem. However a fundamental difference arises within the sphere of property rights, an aspect wich is deepened in the appendix. Finally, using a game-theoretical framework, we analise the strategic aspects of firm’s choice for a participatory or a traditional wage model, obtaining a set of conditions on relative profits and labour demanded which helps to understand when and where a share economy may arise. We conclude stressing that, even if every condition regarding workers’ and firms’ preferences for a share solution were satisfied, a share economy needs the development of some kind of permanent training system, in order to provide workers with indispensable competences (cultural and professional) vitally to the working of a share system where risk were institutionally offset through participation to management as well.

Experiencing breast cancer at the workplace

We study unique data from a dynamic natural experiment involving more than 7,000 American women to understand how a woman’s propensity to perform an annual mammography changes over time after a co-worker is diagnosed with breast cancer. We find that in the year this event occurs the probability that a woman performs a mammography drops by about 8 percentage points, off a base level of about 70%. This impact effect is persistent during at least the following 2 years, is driven by cases of breast cancer diagnosed at non-early stages, and by the behavior of individuals who are less knowledgeable about health issues. This negative effect is confirm ed when we allow for serial correlation in screening behavior and when we estimate the effect of the treatment on the hazard of not screening, at the daily frequency. However, the effect vanishes in placebo experiments

Revisiting wage, earnings, and hours profiles

We document empirical life cycle profiles of wages, earnings, and hours of work for pay from the Panel Study of Income Dynamics, following the same workers for up to four decades. For six of the eight cohorts we analyze the wage profile does not decline with age (not before 65, at least), while the earnings profile always does. The discrepancy is explained by a sharp drop in the hours of work for pay profile beginning shortly after age 50, when many workers start a smooth transition into retirement by working progressively fewer hours. This pattern is not an artifact of staggered abrupt retirement, and is robust to attrition and selection-correction (i.e., taking into account that the composition of our sample, for a given cohort, changes over time). We explore the nontrivial restrictions on dynamic models of the aggregate economy that this evidence suggests, and we provide numerical profiles that can be readily used in quantitative macroeconomic analysis