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Home , Erica Field, Matthew Rabin

Syllabus Economic and Social Networks

Instructor: Professor Adam Szeidl [email protected] Office hours: Wed 3-4pm

2 credits Spring 2021 First-year and second-year PhD, second-year MA

Module: field course

1. COURSE DESCRIPTION

Social networks affect many economic transactions. They transmit information about job opportunities, affect the trade of goods and services, influence how diseases spread, which products we buy, how we vote, whether we become criminals, which technologies we adopt. They also create trust and provide access to financial and other resources. This course reviews some current research on social networks in . We will explore both theoretical models and their applications to development and labor economics. The course begins with an overview of basic facts and tools. We will then cover network formation, peer effects and the social multiplier, social capital and trust, information aggregation in networks, social learning, trade in networks, technology diffusion, job search, and other topics. One goal of the course is to identify new research questions for students.

2. LEARNING OUTCOMES

Key outcomes. By the end of this course, students will have: (1) Knowledge and understanding of the current research on the economics of social networks. (2) The ability to read research papers in this field. (3) The ability to present and critically discuss research papers in this field. (4) Sufficient understanding of open issues to formulate a new research question in this field.

Other outcomes. The course will also help develop skills in the following areas. (1) Critical thinking: students will have an improved ability to distinguish between evidence and interpretation. (2) Quantitative reasoning: students will have an improved understanding of the difference between correlation and causation. (3) Interpersonal communication skills: students will have an improved ability to conduct and to constructively participate in small-group presentations.

3. READING LIST: MAIN TEXT

The textbook for the course is Matthew O. Jackson (2008) Social and Economic Networks, Press. Additional readings include research papers listed in the extensive reading list of the topic outline section below. For many classes, lecture notes will also be made available.

4. TEACHING METHOD AND LEARNING ACTIVITIES

Some classes will have lecture-style presentations by the instructor combined with questions to students to encourage participation. Other classes will consist of student presentation and seminar-style classroom discussions. Classroom activities are complemented by one-on-one interactions during the office hours of the instructor and the teaching assistant.

5. ASSESSMENT

The course grade will be based on student presentations, problem sets and a final exam. Small groups of students will be assigned a topic, and several lectures will consist entirely of student presentations. There will also be regular problem sets. Your course grade will be determined as follows:

Presentation: 25% Problem sets: 25% Final exam: 50%

6. TECHNICAL REQUIREMENTS

This course is intended for PhD students in economics and related fields including network science, and for enthusiastic second-year MA students. Good quantitative skills are required. Familiarity with MA level and data science is useful but not required. If you are in doubt about whether this course is right for you, come to the first class.

7. TOPIC OUTLINE AND SCHEDULE

Below is an overview of the main topics and some relevant readings. Different topics may be covered in different years depending on student interest and research interest.

1. Theoretical and empirical background *Jackson Chapters 1-3. *Glaeser, Edward L., Jose A. Scheinkman, and Bruce I. Sacerdote. "The Social Multiplier." Journal of the European Economic Association 1, no. 2/3 (April 1, 2003) 345-353. *Granovetter, Mark. "The Impact of Social Structure on Economic Outcomes." The Journal of Economic Perspectives 19, no. 1 (2005): 33-50.

*Manski, Charles F. "Identification of Endogenous Social Effects: The Reflection Problem." The Review of Economic Studies 60, no. 3 (July 1, 1993): 531- 542. Rauch, James E. "Does Network Theory Connect to the Rest of Us? A Review of Matthew O. Jackson's Social and Economic Networks." Journal of Economic Literature (2010): 980- 986.

2. Peer effects A. Theory *Ballester, Coralio, Antoni Calvo-Armengol, and Yves Zenou. "Who's Who in Networks. Wanted: The Key Player." Econometrica 74, no. 5 (2006): 1403 - 1417. Angrist, Joshua D. " The perils of peer effects." , 30: 98-108. (2014). *Jackson, M. "The Friendship Paradox and Systematic Biases in Perceptions and Social Norms'' Journal of Political Economy (2018)

B. Education and the workplace Bandiera, Oriana, Iwan Barankay, and Imran Rasul. "Social Incentives in the Workplace." The Review of Economic Studies 77, no. 2 (2010): 417 - 458. Bandiera, Oriana, Iwan Barankay, and Imran Rasul. "Social Preferences and the Response to Incentives: Evidence from Personnel Data." The Quarterly Journal of Economics 120, no. 3 (2005): 917 - 962. *Carrell, Scott E., B. I. Sacerdote, and James E. West. "From Natural Variation to Optimal Policy? The Importance of Endogenous Peer Group Formation." Econometrica 81, no. 3 (2012): 855-882. Mas, Alexandre, and Enrico Moretti. "Peers at Work." The American Economic Review 99, no. 1 (2009): 112 - 145. *Sacerdote, Bruce. "Peer Effects with Random Assignment: Results for Dartmouth Roommates." The Quarterly Journal of Economics 116, no. 2 (2001): 681 - 704.

C. Learning and technology adoption *Banerjee, Abhijit, Arun G. Chandrasekhar, , and Matthew O. Jackson. "The diffusion of microfinance." Science 341.6144 (2013). *Banerjee, Abhijit V., et al. "Using Gossips to Spread Information: Theory and Evidence from Two Randomized Controlled Trials" (2018). Bayer, Patrick, Randi Pintoff, David E. Pozen. "Building Criminal Capital Behind Bars: Social Learning in Juvenile Corrections.'' The Quarterly Journal of Economics 124, no. 1 (2009): 104-147. Bloom, Nicholas, Mark Schankerman and John Van Reenen. "Identifying Technology Spillovers and Product Market Rivalry''. Econometrica 81, no. 4 (2013):1347-1393. *Cai, Jing, Alain de Janvry, and Elisabeth Sadoulet. "Social Networks and the Decision to Insure." American Economic Journal: Applied Economics 7, no. 4 (2015): 81-108. Conley, Timothy G., and Christopher R. Udry. "Learning About a New Technology: Pineapple in Ghana." The American Economic Review (2010): 35 - 69. *Duflo, Esther, and . "The Role of Information and Social Interactions in Retirement Plan Decisions: Evidence from a Randomized Experiment." The Quarterly Journal of Economics 118, no. 3 (2003): 815 - 842.

Kelly, Morgan, and Cormac O Grada. "Market Contagion: Evidence from the Panics of 1854 and 1857." American Economic Review (2000): 1110 - 1124. Liben-Nowell, David, and Jon Kleinberg. "Tracing Information Flow on a Global Scale Using Internet Chain-letter Data." Proceedings of the National Academy of Sciences 105, no. 12 (2008): 4633 - 4638.

3. Opinion formation through social learning A. Observational learning Banerjee, Abhijit V. "A Simple Model of Herd Behavior." The Quarterly Journal of Economics 107, no. 3 (1992): 797- 817. *Bikhchandani, Sushil, David Hirshleifer, and Ivo Welch. "A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades." Journal of Political Economy (1992): 992- 1026. *Eyster, Erik, and Matthew Rabin. "Naive Herding in Rich-information Settings." American Economic Journal: Microeconomics 2, no. 4 (2010): 221- 243. Eyster, Erik, and Matthew Rabin. "Extensive Imitation is Irrational and Harmful." Quarterly Journal of Economics, 2014. Grimm, Veronika, and Friederike Mengel. An experiment on belief formation in networks. Available at SSRN (2014). Smith, Lones, and Peter Sorensen. "Pathological Outcomes of Observational Learning." Econometrica 68, no. 2 (2000): 371- 398.

B. Word-of-mouth learning *Jackson, Chapters 7-8. Acemoglu, Daron, Kostas Bimpikis, and Asuman Ozdaglar. "Dynamics of Information Exchange in Endogeneous Social Networks.'' Theoretical Economics 9, no. 1 (2014): 41-97. Alatas, Vivi, Abhijit Banerjee, Arun G. Chandrasekhar, Rema Hanna, and Benjamin A. Olken. Network Structure and the Aggregation of Information: Theory and Evidence from Indonesia. American Economic Review 106, no. 7 (2016): 1663-1704. Bala, Venkatesh, and Sanjeev Goyal. "Learning from Neighbours." The Review of Economic Studies 65, no. 3 (1998): 595 -621. Campbell, Arthur. "Word-of-mouth communication and percolation in social networks." The American Economic Review 103.6 (2013): 2466-2498. Chandrasekhar, A., Larreguy, H. and Xandri, j. P. "Testing models of social learning on networks: evidence from two experiments'' (2018), *DeMarzo, Peter M., Dimitri Vayanos, and Jeffrey Zwiebel. "Persuasion Bias, Social Influence, and Unidimensional Opinions." The Quarterly Journal of Economics 118, no. 3 (2003): 909- 968. *Golub, Benjamin, and Matthew O. Jackson. "How Homophily Affects the Speed of Learning and Best-response Dynamics." The Quarterly Journal of Economics 127, no. 3 (2012): 1287- 1338. *Golub, Benjamin, and Matthew O. Jackson. "Naive Learning in Social Networks and the Wisdom of Crowds." American Economic Journal: Microeconomics 2, no. 1 (2010): 112- 149.

Mobius, Markus, Tuan Phan, and Adam Szeidl. Treasure Hunt. Working paper, 2015. Rosenblat, Tanya S., and Markus M. Mobius. "Getting Closer or Drifting Apart?" The Quarterly Journal of Economics 119, no. 3 (2004): 971- 1009.

4. Social capital and trust *Angelucci, Manuela, and Giacomo De Giorgi. "Indirect Effects of an Aid Program: How Do Cash Transfers Affect Ineligibles' Consumption?" The American Economic Review (2009): 486- 508. Angelucci, Manuela, Giacomo de Giorgi, and Imran Rasul. "Consumption and Investment in Resource Pooling Family Networks."The Economic Journal, 2016. Banerjee, Abhijit V., and Esther Duflo. "Giving Credit Where It Is Due." The Journal of Economic Perspectives 24, no. 3 (2010): 61- 79. *Dixit, Avinash. "Trade Expansion and Contract Enforcement." Journal of Political Economy 111, no. 6 (2003): 1293- 1317. *Feigenberg, Benjamin, Erica Field, and Rohini Pande. "The Economic Returns to Social Interaction: Experimental Evidence from Microfinance" (2012). Review of Economic Studies 80, no.4 (2012): 1459-1483. Glaeser, Edward L., David I. Laibson, Jose A. Scheinkman, and Christine L. Soutter. "Measuring Trust." The Quarterly Journal of Economics 115, no. 3 (2000): 811- 846. Greif, Avner. "Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders' Coalition." The American Economic Review (1993): 525- 548. *Jackson, M., T. Rodriguez-Barraquer, X. Tan. "Social Capital and Social Quilts: Network Patterns of Favor Exchange'' American Economic Review 102, 1857 - 1897. Kandori, Michihiro. "Social Norms and Community Enforcement." The Review of Economic Studies 59, no. 1 (1992): 63- 80. *Karlan, Dean, Markus Mobius, Tanya Rosenblat, and Adam Szeidl. "Trust and Social Collateral." The Quarterly Journal of Economics 124, no. 3 (2009): 1307- 1361.

5. Labor markets *Jackson, Chapter 10.2. *Beaman, Lori A. "Social Networks and the Dynamics of Labour Market Outcomes: Evidence from Refugees Resettled in the US." The Review of Economic Studies 79, no. 1 (2012): 128- 161. *Calvo-Armengol, Antoni, and Matthew O. Jackson. "The Effects of Social Networks on Employment and Inequality." The American Economic Review 94, no. 3 (2004): 426- 454. Granovetter, Mark. Getting a Job: A Study of Contacts and Careers. University of Chicago Press, 1995. *Granovetter, Mark S. "The Strength of Weak Ties." American Journal of Sociology (1973): 1360- 1380. *Kramarz, Francis, and Oskar Nordström Skans. "When Strong Ties are Strong: Networks and Youth Labour Market Entry." The Review of Economic Studies 80, no. 3 (2014): 1164-1200. Montgomery, James D. "Social Networks and Labor-market Outcomes: Toward an Economic Analysis." The American Economic Review 81, no. 5 (1991): 1408- 1418.

Munshi, Kaivan. "Networks in the Modern Economy: Mexican Migrants in the US Labor Market." The Quarterly Journal of Economics 118, no. 2 (2003): 549- 599. Munshi, Kaivan, and Mark Rosenzweig. "Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap." American Economic Review 106, no. 1., (2016): 46-98. Topa, Giorgio. "Social Interactions, Local Spillovers and Unemployment." The Review of Economic Studies 68, no. 2 (2001): 261- 295.

6. Favoritism and political connections Bandiera, Oriana, Iwan Barankay, and Imran Rasul. "Social Connections and Incentives in the Workplace: Evidence from Personnel Data." Econometrica 77, no. 4 (2009): 1047- 1094. Bertrand, Marianne, Matilde Bombardini, and Francesco Trebbi. "Is It Whom You Know or What You Know? An Empirical Assessment of the Lobbying Process." American Economic Review 104. no. 12 (2014): 3885-3920. *Blanes i Vidal, Jordi, Mirko Draca, Christian Fons-Rosen. "Revolving Door Lobbyists.'' American Economic Review 102, no. 3 (2010): 3731-3748. *Bramoulle Yann, and Sanjeev Goyal. "Favoritism" Journal of 122 (2012): 16-27. Ferguson, Thomas, and Hans-Joachim Voth. "Betting on Hitler --the Value of Political Connections in Nazi Germany." The Quarterly Journal of Economics 123, no. 1 (2008): 101- 137. *Fisman, Raymond. "Estimating the Value of Political Connections." The American Economic Review 91, no. 4 (2001): 1095- 1102. Khwaja, Asim Ijaz, and Atif Mian. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market." The Quarterly Journal of Economics 120, no. 4 (2005): 1371- 1411. Schoenherr, D. (2018) "Political Connections and Allocative Distortions'', Journal of Finance. *Moon, T. and Schoenherr, D. "Political Connections and Resource Allocation in Private Markets: A Social Network Channel'' (2018) Mironov, Maxim, and Ekaterina Zhuravskaya. "Corruption in Procurement: Evidence from Financial Transactions Data'' American Economic Journal: Economic Policy 8, no. 2 (2016): 287-321.

7. Firm networks *Acemoglu, Daron, Vasco M. Carvalho, Asuman Ozdaglar, and Alireza Tahbaz-Salehi. "The Network Origins of Aggregate Fluctuations." Econometrica 80, no. 5 (2012): 1977- 2016. Atkin, D, Khandelwal, A and Osman, A. 2016. 'Exporting and Firm Performance: Evidence from a Randomized Trial'. Quarterly Journal of Economics. Braggion, Fabio. "Managers and (Secret) social networks: the influence of the freemasonry on firm performance.'' Journal of the European Economic Association 9.6 (2011): 1053-1081. Burchardi, Konrad B., and Tarek A. Hassan. "The Economic Impact of Social Ties: Evidence from German Reunification." The Quarterly Journal of Economics 128, no. 3 (2013): 1219- 1271.

*Cai, J. and Szeidl, A. "Interfirm Relationships and Business Performance'', Quarterly Journal of Economics, 2018, \hrefhttps://academic.oup.com/qje/article/133/3/1229/4768295link *Carvalho, V., Makoto Nirei, and Yukiko U. Saito and Alireza Tahbaz-Salehi "Supply Chain Disruptions: Evidence from Great East Japan Earthquake.'' mimeo, 2016. Cohen, Lauren, Umit G. Gurun, and Christopher J. Malloy. "Resident networks and firm trade.'' No. w18312. National Bureau of Economic Research, 2012. Greenstone, Michael, Richard Hornbeck, Enrico Moretti. "Identifying Agglomeration Spillovers: Evidence from Winners and Losers of Large Plant Openings.'' Journal of Political Economy 118, vol. 3 (2010). *Haselmann R., Schoenherr, D. and Vig V. "Rent-Seeking in Elite Networks'' Journal of Political Economy, 126(4), 1638-1690, (2018) Oberfield, Ezra. "A theory of input-output architecture.'' Econometrica, (2018).

8. Financial networks *Acemoglu, Daron, Asuman Ozdaglar, and Alireza Tahbaz-Salehi. Systemic risk and stability in financial networks. American Economic Review, 105(2): 564-608. 2015. Allen, Franklin, Ana Babus, and Elena Carletti. Financial Connections and Systemic Risk. National Bureau of Economic Research, 2010. *Allen, Franklin, and Douglas Gale. "Financial Contagion." Journal of Political Economy 108, no. 1 (2000): 1- 33. Babus, Ana, and Péter Kondor. "Trading and information diffusion in over-the-counter markets.'' Econometrica. Caballero, Ricardo J., and Alp Simsek. "Fire sales in a model of complexity." The Journal of Finance 68.6 (2013): 2549-2587. Cifuentes, Rodrigo, Gianluigi Ferrucci, and Hyun Song Shin. "Liquidity Risk and Contagion." Journal of the European Economic Association 3, no. 2- 3 (2005): 556- 566. *Elliott, Matthew, Benjamin Golub, and Matthew O. Jackson. (2014) "Financial Networks and Contagion." American Economic Review, 104(10): 3115-53. Zawadowski, Adam. "Entangled Financial Systems." Review of Financial Studies 26, no. 5 (2013): 1291- 1323.

9. Network formation: evidence and random graph models *Jackson, Chapters 4-5. Albert, Reka, and Albert-Laszlo Barabasi. "Statistical Mechanics of Complex Networks." Reviews of Modern Physics 74, no. 1 (2002). Allcott, by Hunt, Dean Karlan, Markus M. Mobius, Tanya S. Rosenblat, and Adam Szeidl. "Community Size and Network Closure." The American Economic Review 97, no. 2 (2007): 80- 85. Carrell, Scott E., Mark Hoekstra, and James E. West. "Racial Preference Formation." (2013). Chandrasekhar, Arun, and Matthew O. Jackson. "A network formation model based on subgraphs'', 2018.

*Banerjee, Abhijit, Arun G. Chandrasekhar, Esther Duflo, and Matthew O. Jackson. "Changes in social network structure in response to exposure to formal credit markets'', (2018) *Currarini, Sergio, Matthew O. Jackson, and Paolo Pin. "An Economic Model of Friendship: Homophily, Minorities, and Segregation." Econometrica 77, no. 4 (2009): 1003- 1045. Graham, Bryan S. "Methods of Identification in Social Networks." Annual Review of Economics 7.1 (2014). * Hess S., Jaimovich D., Schundeln M. "Development Projects and Economic Networks: Lessons From Rural Gambia'', (2018) Jackson, Matthew O., and Brian W. Rogers. "Meeting Strangers and Friends of Friends: How Random Are Social Networks?" The American Economic Review (2007): 890- 915. Marmaros, David, and Bruce Sacerdote. "How Do Friendships Form?" The Quarterly Journal of Economics 121, no. 1 (2006): 79- 119. Watts, Duncan J., and Steven H. Strogatz. "Collective Dynamics of "small-world'networks." Nature 393, no. 6684 (1998) 440- 442.

10. Network formation: strategic models *Jackson, Chapter 6. Bala, Venkatesh, and Sanjeev Goyal. "A Noncooperative Model of Network Formation." Econometrica 68, no. 5 (2000): 1181- 1229. *Galeotti, Andrea, and Sanjeev Goyal. "The Law of the Few." The American Economic Review 100, no. 4 (2010): 1468- 1492. Hojman, Daniel A., and Adam Szeidl. "Core and Periphery in Networks." Journal of Economic Theory 139, no. 1 (2008): 295- 309. *Jackson, Matthew O., and Asher Wolinsky. "A Strategic Model of Social and Economic Networks." Journal of Economic Theory 71, no. 1 (1996): 44- 74. Konig, Michael, Claudio Tessone, and Yves Zenou. "Nestedness in Networks: A Theoretical Model and Some Applications" 2013, Theoretical Economics 9, no. 3 (2013): 695-752.

11. Network games *Jackson, Chapter 9. *Galeotti, Andrea, Sanjeev Goyal, Matthew O. Jackson, Fernando Vega-Redondo, and Leeat Yariv. "Network Games." The Review of Economic Studies 77, no. 1 (2010): 218- 244. Jackson, Matthew, and Yves Zenou. "Games on Networks." Handbook of , Vol. 4. (2012).

12. Trading in networks Choi, Syngjoo, Andrea Galeotti, and Sanjeev Goyal. "Trading in Networks: Theory and Experiments." (2014). *Dell, Melissa. "Trafficking networks and the Mexican drug war." American Economic Review 105, no. 6 (2015): 1738-79.

*Donaldson, Dave. Railroads of the Raj: "Estimating the impact of transportation infrastructure." American Economic Review. Faber, Benjamin. "Trade Integration, Market Size, and Industrialization: Evidence from China's National Trunk Highway System." The Review of Economic Studies 81, no. 3 (2014): 1046-1070. Kranton, Rachel E., and Deborah F. Minehart. "A Theory of Buyer-seller Networks." American Economic Review 91, no. 3 (2001): 485- 508.

8. SHORT BIO OF THE INSTRUCTOR

Adam Szeidl is Professor of Economics at Central European University and a Research Fellow at the Centre for Economic Policy Research (CEPR). His research studies networks in a variety of economic domains. He currently works on political and business networks. Adam's research papers have been published in leading economics journals including the American Economic Review, Econometrica, and the Quarterly Journal of Economics. Adam is a recipient of a European Research Council (ERC) grant. Before returning to Europe, Adam was Associate Professor with tenure, (2010-12) and Assistant Professor (2004-10) of Economics at the University of California, Berkeley. He received his PhD from Harvard University in 2004.