Economics Seminar: Sergio Currarini (Universita di Venezia)

Sabancı University
Faculty of Arts and Social Sciences

ECONOMICS SEMINAR

Direct Complements and Indirect Substitutes

Sergio Currarini

(Universita di Venezia)

November 29, 2013, Friday

14:00  FASS 2034

Abstract: We study linear quadratic games played on a social network where interaction is of the strategic complement type between neighbors and of the substitute type between agents at distance two. We provide micro-founded economic problems where this patter of interaction applies, and where distance-two substitution is due to a local congestion effect. We show that the introduction of distance-two substitution helps explain empirical evidence where strong positive correlation in behavior goes alongside with behavioural patterns not implied by a model of peer effects alone. In particular, we show that distance-two substitution explains the marginalization of smokers in social networks (see Christakis and Fowler, 2008), the non-monotonic relation between network density and behavior in industrial districts (see Shaver and Flyer, 2000), and some controversial evidence about the e ffects of network segregation on the polarization of behavior. We conclude by discussing the implications of considering indirect substitution for the identication of peer eff ects in empirical analyses.

P.S: The seminar will be held in English.