Essays on Social Interactions and Network Economics

This thesis is composed of three self-contained chapters which all revolve around social interactions and their effect on market stability and economic outcomes. The first chapter investigates the stochastic stability of the long-run equilibrium networks formed when the agents of a bipartite economy dynamically construct their network, caring first and foremost about connecting with an optimal number of individuals of the other type. We show that only in a model with agent errors are stochastically stable networks always efficient, in that their cardinality (total number of links) equals the highest number of connections which can be formed. We illustrate our findings using social platforms and individuals as our bipartite economy. The second chapter examines the effects of network size on the coffee production of Fair Trade certified farmers in Peru. Using a unique dataset, we find that the overall impact of network size on production is not significant. For individuals who possess a pest control system, we find that a unit increase in network size leads to a 1.5% increase in coffee production. In contrast, the network size impact is significantly negative for producers who report not being satisfied with the overall status of their life. Our study is the first to rigorously investigate network size effects within a Fairtrade environment where cooperative membership has been shown to play a significant role. The third chapter aims to investigate and quantify the neighbourhood effects in the demand for financial advice. Using data from the 2009 iteration of the Canadian Financial Capability Survey (CFCS), we also attempt to estimate this endogenous effect on the propensity to consult with a financial advisor. We find significant social effects on the individual likelihood of making use of financial advice. The propensity to seek advice from a professional is less impacted by neighbourhood behavior. The paper also explores the presence of heterogeneous impacts, partitioning survey respondents not only by location, but also based on an additional personal characteristic such as gender, age, education, or immigration status. Results leave no doubt about the importance of homophily in understanding social interactions in the demand for financial advice.