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Equilibrium homophily in networks

Vincent Boucher ()

European Economic Review, 2020, vol. 123, issue C

Abstract: I look at the equilibrium effects of homophily in network formation games having positive externalities. I show that very weak preferences for network effects (such as a preference for being part of a clique) may result in very high levels of homophily at equilibrium. I present an empirical procedure that allows an evaluation of the role of network effects on the observed level of homophily in the data. I apply my method to the formation of friendship networks in the USA. I show that network effects are small and have a negligible contribution to the observed racial homophily in friendship networks.

Keywords: Homophily; Network formation; Supermodular games; Approximate Bayesian computation (search for similar items in EconPapers)
JEL-codes: D85 C11 C15 C72 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.euroecorev.2020.103370

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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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