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Microeconomics Workshop - Tommaso Denti

Mon, 09/25/2017 - 4:15pm

Tommaso Denti

Cornell University

498 Uris Hall

"Network Effects in Information Acquisition"

The most common way to think about network effects is "linear:" Given a network of relations, individual behavior is some linear combination of neighbors' behavior. Equilibrium behavior is then captured by network centrality measures, most prominently the Bonacich one. This paper shows that endogenous information acquisition naturally introduces "nonlinearities" in network effects. These nonlinearities make new aspects of the network structure (beyond Bonacich centrality) relevant for equilibrium behavior, for instance clustering: more information is gathered in clustered network, that is, in networks where neighbors of neighbors are also neighbors of one another. The analysis is conducted under the assumption that cost of information is proportional to entropy reduction, as in rational inattention. A representation theorem is provided for foundation of this functional form in terms of primitive monotonicity properties of cost of information.

Event Categories: Microeconomic Theory