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: C11 C15 C72 D85 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:123:y:2020:i:c:s0014292120300027

DOI: 10.1016/j.euroecorev.2020.103370

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