Matthew O. Jackson

The Effects of Social Networks on Employment and Inequality

We develop a model where agents obtain information about job opportunities through an explicitly modeled network of social contacts. We show that employment is positively correlated across time and agents. Moreover, unemployment exhibits duration dependence: the probability of obtaining a job decreases in the length of time that an agent has been unemployed. Finally, we examine inequality between two groups. If staying in the labor market is costly and one group starts with a worse employment status, then that groups drop-out rate will be higher and their employment prospects will be persistently below that of the other group.

The Stability of Hedonic Coalition Structures

We consider the partitioning of a society into coalitions in purely hedonic settings, i.e., where each players payoff is completely determined by the identity of other members of her coalition. We first discuss how hedonic and nonhedonic settings differ and some sufficient conditions for the existence of core stable coalition partitions in hedonic settings. We then focus on a weaker stability condition: individual stability, where no player can benefit from moving to another coalition while not hurting the members of that new coalition. We show that if coalitions can be ordered according to some characteristic over which players have single-peaked preferences, or where players have symmetric and additively separable preferences, then there exists an individually stable coalition partition. Examples show that without these conditions, individually stable coalition partitions may not exist. We also discuss some other stability concepts, and the incompatibility of stability with other normative properties. Journal of Economic Literature Classification Numbers: C71, A14, D20.

An Economic Model of Friendship: Homophily, Minorities and Segregation

We develop a model of friendship formation that sheds light on segregation patterns observed in social and economic networks. Individuals come in different types and have 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 trace each of these empirical observations to specific properties of the theoretical model and highlight the role of choice and chance in generating homophilous behavior. Finally we discuss welfare implications of the model.

A Crash Course in Implementation Theory

Abstract. This paper is meant to familiarize the audience with some of the fundamental results in the theory of implementation and provide a quick progression to some open questions in the literature.

Financial Networks and Contagion

We model contagions and cascades of failures among organizations linked through a network of financial interdependencies. We identify how the network propagates discontinuous changes in asset values triggered by failures (e.g., bankruptcies, defaults, and other insolvencies) and use that to study the consequences of integration (each organization becoming more dependent on its counterparties) and diversification (each organization interacting with a larger number of counterparties). Integration and diversification have different, nonmonotonic effects on the extent of cascades. Initial increases in diversification connect the network which permits cascades to propagate further, but eventually, more diversification makes contagion between any pair of organizations less likely as they become less dependent on each other. Integration also faces tradeoffs: increased dependence on other organizations versus less sensitivity to own investments. Finally, we illustrate some aspects of the model with data on European debt cross-holdings.

On the Formation of Interaction Networks in Social Coordination Games

There are many situations where two interacting individuals can benefit from coordinating their actions. We examine the endogenous choice of partners in such social coordination games and the implications for resulting play. We model the interaction pattern as a network where individuals periodically have the discretion to add or sever links to other players. A player chooses whether to add or sever a link based on the (prospective) partners past behavior. With such endogenous interaction patterns we see multiple stochastically stable states of play, including some that involve play of equilibria in the coordination game that are neither efficient nor risk dominant.

Networks in Labor Markets: Wage and Employment Dynamics and Inequality

We present a model of labor markets that accounts for the social network through which agents hear about jobs. We show that an improvement in the wage or employment status of either an agents direct or indirect contacts leads to an increase in the agents employment probability and expected wages, in the sense of first order stochastic dominance. A similar effect results from an increase in the network contacts of an agent. In terms of dynamics and patterns, we show that both wages and employment are positively associated (a strong form of correlation) across time and agents. We also analyze the decisions of agents regarding staying in the labor market or dropping out. If there are costs to staying in the labor market, and we compare two networks of agents that are identical except that one group starts with a worse wage status, then that groups drop-out rate will be higher that the others and there will be a persistent difference in wages between the groups.

The Formation of Networks with Transfers Among Players

We examine the formation of networks among a set of players whose payoffs depend on the structure of the network. We focus on games where players may bargain by promising or demanding transfer payments when forming links. We examine several variations of the transfer/bargaining aspect of link formation. One aspect is whether players can only make and receive transfers to other players to whom they are directly linked, or whether they can also subsidize links that they are not directly involved in. Another aspect is whether or not transfers related to a given link can be made contingent on the full resulting network or only on the link itself. A final aspect is whether or not players can pay other players to refrain from forming links. We characterize the networks that are supported under these variations and show how each of the above aspects is related either to accounting for a specific type of externality, or to dealing with the combinatorial nature of network payoffs.

Strategy-Proof Exchange

We consider the allocation of goods in exchange economies with a finite number of agents who may have private information about their preferences. In such a setting, standard allocation rules such as Walrasian equilibria or rational expectations equilibria are not compatible with individual incentives. We characterize the set of allocations rules which are incentive compatible, or in other words, the set of strategy-proof social choice functions. The social choice functions which are strategy-proof are those which can be obtained from trading according to pre-specified proportions. The number of proportions which can be accommodated is proportional to the number of agents. Such rules are necessarily inefficient, even in the limit as the economy grows.

Identifying the roles of race-based choice and chance in high school friendship network formation

Homophily, the tendency of people to associate with others similar to themselves, is observed in many social networks, ranging from friendships to marriages to business relationships, and is based on a variety of characteristics, including race, age, gender, religion, and education. We present a technique for distinguishing two primary sources of homophily: biases in the preferences of individuals over the types of their friends and biases in the chances that people meet individuals of other types. We use this technique to analyze racial patterns in friendship networks in a set of American high schools from the Add Health dataset. Biases in preferences and biases in meeting rates are both highly significant in these data, and both types of biases differ significantly across races. Asians and Blacks are biased toward interacting with their own race at rates >7 times higher than Whites, whereas Hispanics exhibit an intermediate bias in meeting opportunities. Asians exhibit the least preference bias, valuing friendships with other types 90% as much as friendships with Asians, whereas Blacks and Hispanics value friendships with other types 55% and 65% as much as same-type friendships, respectively, and Whites fall in between, valuing other-type friendships 75% as much as friendships with Whites. Meetings are significantly more biased in large schools (>1,000 students) than in small schools (<1,000 students), and biases in preferences exhibit some significant variation with the median household income levels in the counties surrounding the schools.