Econometrica: Jul 2009, Volume 77, Issue 4

An Economic Model of Friendship: Homophily, Minorities, and Segregation

https://doi.org/10.3982/ECTA7528
p. 1003-1045

Sergio Currarini, Matthew O. Jackson, Paolo Pin

We develop a model of friendship formation that sheds light on segregation patterns observed in social and economic networks. Individuals have types and see type‐dependent benefits from friendships. We examine the properties of a steady‐state equilibrium of a matching process of friendship formation. We use the model to understand three empirical patterns of friendship formation: (i) larger groups tend to form more same‐type ties and fewer other‐type ties than small groups, (ii) larger groups form more ties per capita, and (iii) all groups are biased towards same‐type relative to demographics, with the most extreme bias coming from middle‐sized groups. We show how these empirical observations can be generated by biases in preferences and biases in meetings. We also illustrate some welfare implications of the model.

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Supplemental Material

Supplement to "An Economic Model of Friendship: Homophily, Minorities and Segregation"

An analysis of two important issues: one providing a treatment of the friendship formation model when preferences are satiated in the number of friends and a study, in detail, of a model with discrete friendships.

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