The Empirical Content of Models with Multiple Equilibria in Economies with Social Interactions

Alberto Bisin, Andrea Moro and Giorgio Topa

No 17196, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study a general class of models with social interactions that might display multiple equilibria. We propose an estimation procedure for these models and evaluate its efficiency and computational feasibility relative to different approaches taken to the curse of dimensionality implied by the multiplicity. Using data on smoking among teenagers, we implement the proposed estimation procedure to understand how group interactions affect health-related choices. We find that interaction effects are strong both at the school level and at the smaller friends-network level. Multiplicity of equilibria is pervasive at the estimated parameter values, and equilibrium selection accounts for about 15 percent of the observed smoking behavior. Counterfactuals show that student interactions, surprisingly, reduce smoking by approximately 70 percent with respect to the equilibrium smoking that would occur without interactions.

JEL-codes: C51 C52 I1 (search for similar items in EconPapers)
Date: 2011-07
Note: CH EH
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Citations: View citations in EconPapers (23)

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Working Paper: The empirical content of models with multiple equilibria in economies with social interactions (2011)
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