Social Interactions and Spillovers

Reprint No. 2011:20

Author(s): Antonio Cabrales, Antoni Calvó-Armengol and Yves ZenouYear: 2011 Title: Games and Economic Behavior Volume (No.): 72 (2) Pages: 339–360
Online article (restrictions may apply)

The aim of this paper is to provide a tractable model where both socialization (or network formation) and productive efforts can be analyzed simultaneously. This permits a fullfledged
equilibrium/welfare analysis of network formation with endogenous productive efforts and heterogeneous agents. We show that there exist two stable interior equilibria, which we can Pareto rank. The socially efficient outcome lies between these two equilibria. When the intrinsic returns to production and socialization increase, all equilibrium actions decrease at the Pareto-superior equilibrium, while they increase at the Pareto-inferior equilibrium. In both cases, the percentage change in socialization effort is higher (in absolute value) than that of the productive effort.

Cabrales, Antonio, Antoni Calvó-Armengol and Yves Zenou (2011), "Social Interactions and Spillovers". Games and Economic Behavior 72(2), 339–360.

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Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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