Journal Article

Discrete Choice with Social Interactions

William A. Brock and Steven N. Durlauf

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 68, issue 2, pages 235-260
Published in print April 2001 | ISSN: 0034-6527
Published online April 2001 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/1467-937X.00168
Discrete Choice with Social Interactions

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This paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects. We study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking. Laws of large numbers are generated in such environments. Multiplicity of equilibria in these models, which are equivalent to the existence of multiple self-consistent means for average choice behaviour, will exist when the social interactions exceed a particular threshold. Local stability of these multiple equilibria is also studied. The properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices. Finally, a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established.

Journal Article.  0 words. 

Subjects: Economics

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