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Keeping up with the neighbors: Social interaction in a market economy

Ghiglino, C and Goyal, S (2010) 'Keeping up with the neighbors: Social interaction in a market economy.' Journal of the European Economic Association, 8 (1). 90 - 119. ISSN 1542-4766

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Abstract

We consider a world in which individuals have private endowments and trade in markets while their utility is negatively affected by the consumption of their neighbors. Our interest is in understanding how the social structure of comparisons, taken together with the familiar fundamentals of the economy (endowments, technology, and preferences), shapes equilibrium prices, allocations, and welfare.We showthat equilibrium prices and consumption are a function of a single network statistic: centrality. An individual's "centrality" is given by the weighted sum of paths of different lengths to all others in a social network. In particular, prices are proportional to the sum of centralities, and an individual's consumption depends on howcentral she is relative to others in the network. Inequalities in wealth and connections reinforce each other in markets: A transfer of resources from less to more central agents raises prices. As segregated communities become integrated, the poor lose while the rich gain in utility! © 2010 by the European Economic Association.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 16 Jul 2012 17:22
Last Modified: 23 Jan 2019 00:15
URI: http://repository.essex.ac.uk/id/eprint/3000

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