An Economic Model of Friendship: Homophily, Minorities, and Segregation

Front Matter ......Page 1 Back Matter ......Page 3 Introduction......Page 7 Measuring Homophily......Page 11 Patterns of Friendships and Homophily......Page 13 Relative Homophily......Page 14 Group Size and the Total Number of Friends......Page 15 Inbreeding Homophily......Page 16 Agents, Types, and Payoffs......Page 17 A Matching Process......Page 19 An Agent's Decision Problem......Page 20 Steady-State Equilibrium......Page 21 An Example of a Steady-State Equilibrium......Page 22 Some Benchmark Results......Page 23 Relative Homophily and Equilibrium Conditions......Page 24 Same-Type Bias, Numbers of Friends, and Homophilous Behavior......Page 26 Inbreeding Homophily and the Matching Process......Page 27 A Biased Matching Process......Page 28 On the Role of Preferences and Opportunities......Page 30 Many Types......Page 32 Welfare......Page 33 Appendix A: The Matching Process......Page 37 Appendix B: Proofs......Page 40 Appendix C: Ruling Out Non-Well-Ordered Equilibria......Page 45 Appendix D: Welfare Analysis With Many Types and Logarithmic Preferences......Page 46 References......Page 48 Author's Addresses......Page 49 Introduction......Page 51 Context......Page 55 Key Feature 1: Natural Variation......Page 57 Key Feature 2: The Experimental Research Design......Page 58 Technology and Incentives......Page 60 Social Connections......Page 61 The Manager's Effort and Allocation Choices......Page 62 Testing for a Negative Allocation Effect......Page 63 Data Sources......Page 64 Measuring Social Connections......Page 65 Descriptives......Page 67 Methodology......Page 70 Baseline Results......Page 72 Evidence in Support of the Identifying Assumptions......Page 76 The Effect of Social Connections on the Firm's Performance......Page 77 Quantile Regression Estimates......Page 78 Fixed Effects Estimates......Page 80 Further Evidence......Page 82 The Overall Effect on Average Field-Day Productivity......Page 83 Discussion......Page 84 Proofs......Page 86 Identification: The COO's Allocation Algorithm......Page 87 Connected versus Unconnected Workers......Page 88 The Allocation of Workers to Managers......Page 90 Observability of Social Connections......Page 91 Identification: Time Effects......Page 93 References......Page 96 Author's Addresses......Page 98 Introduction......Page 99 Model......Page 102 Histories, Strategies, Beliefs, and Period-2 Outcome......Page 103 The Equilibrium Concept......Page 104 The Period-2 Continuation Game......Page 105 Equilibria for English Auctions With Resale......Page 107 The Interim Pareto Dominance of Collusion......Page 112 Not All t*-Collusive Equilibria Are Pareto Improving......Page 117 There May Be No Pareto Improvement Without Resale......Page 119 Appendix A: Proofs of Proposition 1 and the Lemmas Used to Establish Proposition 2......Page 121 Appendix B: t*-Equilibrium Strategies Are Undominated......Page 136 References......Page 139 Author's Addresses......Page 140 Introduction......Page 141 Markets......Page 144 Self-Enforcing Private Debt......Page 146 Unbacked Public Debt......Page 147 An Example......Page 148 Characterizing Repayment Incentives......Page 152 Self-Enforcement and Exact Rollover......Page 154 General Equilibrium Characterization......Page 158 Concluding Remarks......Page 160 Appendix: Proof of Proposition 5......Page 162 References......Page 167 Author's Addresses......Page 168 Introduction......Page 169 Definition......Page 172 Theoretical Framework......Page 173 Definition......Page 176 Assumption......Page 177 Relation to the Previous Literature......Page 178 Assumptions......Page 180 Predictions......Page 181 Minimal Sufficient Conditions......Page 183 Relation to the Previous Literature......Page 184 A Simple Generalization With Factor-Augmenting Technological Differences......Page 185 General Technological Differences......Page 186 A Counterexample......Page 187 Robust Predictions......Page 189 Concluding Remarks......Page 190 Appendix: Proofs......Page 191 References......Page 194 Author's Addresses......Page 196 Introduction......Page 197 The Benchmark Model......Page 199 Nonidentification Results......Page 201 Exogenous Participation......Page 204 Endogenous Participation......Page 209 Reserve Price......Page 211 Affiliated Private Values......Page 212 Asymmetric Bidders......Page 213 Asymmetry in Private Values......Page 214 Asymmetry in Preferences......Page 215 Asymmetry in Both Preferences and Private Values......Page 216 Bidding Strategies Nonincreasing in Competition......Page 217 Conclusion......Page 219 Appendix......Page 221 References......Page 230 Author's Addresses......Page 231 Introduction......Page 233 Macroeconometrics......Page 236 Microeconometrics......Page 237 Issues of Identification......Page 238 Estimation......Page 239 Alternative Estimation Methods......Page 242 Assumptions......Page 244 Limiting Theory......Page 247 The Meaning of D(F) and the Within-Group Interpretation......Page 252 Bias-Corrected Estimator......Page 253 Estimating the Covariance Matrices......Page 255 Models With Both Additive and Interactive Effects......Page 256 Testing Additive versus Interactive Effects......Page 260 Time-Invariant and Common Regressors......Page 262 Discussion......Page 263 Finite Sample Properties via Simulations......Page 264 Concluding Remarks......Page 266 Appendix A: Proofs......Page 267 References......Page 280 Author's Addresses......Page 283 Introduction......Page 285 Example......Page 287 BLP Model With Multiple Equilibria......Page 288 Observable Implications of MCS......Page 289 Structure......Page 291 Main Result......Page 293 Robustness to Identification Failures......Page 297 Continuous Explanatory Variable......Page 298 References......Page 299 Author's Addresses......Page 301 Introduction......Page 303 Background......Page 304 Reanalysis of the Inference Problem......Page 306 Conclusion......Page 312 Preliminaries......Page 313 References......Page 318 Author's Addresses......Page 319 Introduction......Page 321 Examples......Page 323 Formal Presentation......Page 324 Conditional Independence: Disassociating Types......Page 325 Common Knowledge......Page 326 Main Results......Page 327 Disassociating Types......Page 329 Relaxing the Common-Prior Assumption......Page 330 Author's Addresses......Page 332 Announcements ......Page 333 Forthcoming Papers ......Page 340 Submission of Manuscripts to the Econometric Society Monograph Series ......Page 341