Economic Theory Seminar Series: Dynamic Social Interactions

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) characterise 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 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.