Manski JEP 2000 Economic Analysis of Social Interactions

Charles F. Manski Journal of Economic Perspectives 2000

Empirical research on social interactions is in a weak state.

Nonmarket interactions

General competitive equilibrium-- economic agents interact only through market prices. nonmarket interactions are not phenomena of intrinsic interest. They are problems of incomplete markets that may prevent the economy from achieving a social optimum. Welfare economics prescribed that the externalities created by nonmarket interactions should, if possible, be eliminated by setting property rights that would permit trade to take place.

non-cooperative game theory: encourages economists to see all interactions as games, with markets as special cases. è phenomena as far from traditional economic concerns as social norms

Labor economics has developed from a field that studies wages of workers to the decision of families and households. Much of the research has considered family or household as one utility-maximizing entity and thus abstract from the interactions among the members of the entity.  It is useful to consider members have different objectives.

The action of an agent can affect the actions of other agents through three channels: constraints, expectations and preferences.

Constraints: congestion analysis. The decisions of agents to engage in some activities collectively determine their costs, which in turn determine the activity bundles that are feasible for agents to choose.

Expectations: An agent can acquire information from the actions of other people and sometimes with information on corresponding outcomes as well.  The information help the agent form expectations and hence make decisions. What are the outcomes of certain actions. Information cascade serves as an example of interaction through expectations.

Observational learning generates expectations interactions.

Preference: conformity.

(Becker 2000) use the average of a decision variable in a society as a proxy for social norms which deviation causes a decrease in utility.

In noncooperative game theory , agents interact through preferences, because the utility that each agent receives depends on the actions chosen by other agents.

On which side to drive… is an example