Measuring Social Interactions

This paper presents on overview of the economics that lies behind social interaction models and briefly discusses the empirical approaches to social interactions. We present a simple model with local interactions, similar to Glaeser, Sacerdote and Scheinkman (1996) but using a continuous action space and starting with optimizing behavior. We then extend the model to include both global and local interactions. We suggest and use a methodology for using variation of intra-city aggregates to identify the relative sizes of local and global interactions. We also present a model with endogenous location choice and use the predictions of that model to identify the sources of cross-city variance that are due to sorting and interaction. Finally, we present a brief discussion of using time-series to estimate the social interactions in broad aggregates.