Supplementary Material to “ An Economic Model of Friendship : Homophily , Minorities and Segregation ” Sergio

This material supplements the paper ”An Economic Model of Friendship Formation: Homophily, Minorities and Segregation” with an analysis of two important issues. First, we provide a treatment of the friendship formation model when preferences are satiated in the number of friends. We show that our qualitative results are still holding in this case, and that, in addition, inbreeding homophily can be generated for all groups even in the absence of bias in the technology of the meeting process. This point is of some importance, since it points to a larger role for choice and preferences in generating the observed patterns of friendships in U.S. high schools. Second, we study in detail a model with discrete friendships, for which the version of the “law of large numbers” used in the paper with a continuum of agents no longer applies. For this case, we study the richer strategic framework that describes the matching process, and show that the structure of equilibrium strategies “replicates” the one we have derived in the continuum case, providing further justification to our model. ∗Dipartimento di Scienze Economiche, Università di Venezia and School for Advanced Studies in Venice (SSAV). Email: [email protected] †Department of Economics, Stanford University and the Santa Fe Institute. Email: [email protected], http://www.stanford.edu/∼jacksonm/ ‡Abdus Salam International Center for Theoretical Physics, Trieste and Università di Venezia. Email: [email protected]