Publication: Social interactions and spillovers
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2011
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Tutors
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Elsevier
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Abstract
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
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Keywords
Peer effects, Network formation, Welfare
Bibliographic citation
Games and Economic Behavior, 2011, vol. 72, nº 2, p.339-360