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Social Networks and the Aggregation on Individual Decisions

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  • D. Lee Heavner
  • Lance Lochner

Abstract

This paper analyzes individual decisions to participate in an activity and the aggregation of those decisions when individuals gather information about the outcomes and choices of (a few) others in their social network. In this environment, aggregate participation rates are generally inefficient. Increasing the size of social networks does not necessarily increase efficiency and can lead to less efficient long-run outcomes. Both subsidies for participation and penalties for non-participation can increase participation rates, though not necessarily by the same amount. Punishing non-participation has much greater effects on participation rates than rewarding participation when current rates are very low. A program that provides youth with mentors who have participated themselves can increase participation rates, especially when those rates are low. Finally, communities plagued by the flight of successful participants will experience lower short- and long-run participation rates.

Suggested Citation

  • D. Lee Heavner & Lance Lochner, 2002. "Social Networks and the Aggregation on Individual Decisions," NBER Working Papers 8979, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8979
    Note: CH LS
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    References listed on IDEAS

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    Cited by:

    1. Bjerk, David, 2010. "Thieves, thugs, and neighborhood poverty," Journal of Urban Economics, Elsevier, vol. 68(3), pages 231-246, November.
    2. Yannis M. Ioannides & Linda Datcher Loury, 2004. "Job Information Networks, Neighborhood Effects, and Inequality," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1056-1093, December.
    3. Lance Lochner, 2007. "Individual Perceptions of the Criminal Justice System," American Economic Review, American Economic Association, vol. 97(1), pages 444-460, March.
    4. Fabien Moizeau & Jean-Philippe Tropeano & Jean-Christophe Vergnaud, 2010. "Effets de voisinage et localisation. La ségrégation urbaine est-elle inéluctable ?," Revue économique, Presses de Sciences-Po, vol. 61(4), pages 723-750.
    5. Sandro de Freitas Ferreira & Suzana Quinet de Andrade Bastos & Admir Antonio Betarelli Junior, 2019. "The role of social control in Brazilian homicide rates," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(6), pages 2695-2717, November.

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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • H0 - Public Economics - - General

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