Economics research seminar: Onur Ozgur, Unimelb

Presenter

Associate Professor of Economics Onur Ozgur, University of Melbourne

Topic

Dynamic social interactions 

abstract

Social interactions are arguably at the root of several important socio-economic phenomena, from smoking and other risky behavioural patterns in teens to peer effects in school performance. We study social interactions in linear dynamic economies. For these economies, we are able to (i) obtain several desirable theoretical properties, such as existence, uniqueness, ergodicity; to (ii) develop simple recursive methods to rapidly compute equilibria; and to (iii) characterize several general properties of dynamic equilibria. Furthermore, we show that dynamic forward-looking behaviour at equilibrium plays an instrumental role in allowing us to (iv) prove a positive identification result both in stationary and non-stationary economies. Finally, we put the tools and results we obtain in theory to work in an empirical study of the risky behaviour of adolescents, concentrating on smoking, by structurally estimating a dynamic social interaction model in the context of students’ school networks included in the National Longitudinal Study of Adolescent Health (Add Health). We find strong evidence for forward-looking dynamics and addiction effects. We also find that social interactions in the estimated dynamic model are quantitatively large. We study and sign the bias associated to disregarding dynamic equilibrium, e.g., postulating a sequence of static (myopic) one-period economies, a common practice in empirical work. We show that a misspecified static model would fit data substantially worse while producing a much smaller estimate of the social interaction effect