NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Linear Social Interactions Models

Lawrence E. Blume, William A. Brock, Steven N. Durlauf, Rajshri Jayaraman

NBER Working Paper No. 19212
Issued in July 2013
NBER Program(s):   CH   DEV   ED   EFG   HE   LS   PE   TWP

This paper provides a systematic analysis of identification in linear social interactions models. This is both a theoretical and an econometric exercise as the analysis is linked to a rigorously delineated model of interdependent decisions. We develop an incomplete information game that describes individual choices in the presence of social interactions. The equilibrium strategy profiles are linear. Standard models in the empirical social interactions literature are shown to be exact or approximate special cases of our general framework, which in turn provides a basis for understanding the microeconomic foundations of those models. We consider identification of both endogenous (peer) and contextual social effects under alternative assumptions on a priori information about network structure available to an analyst, and contrast the informational content of individual-level and aggregated data. Finally, we discuss potential ramifications for identification of endogenous group selection and differences between the information sets of analysts and agents.

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