Gagnon, J. and Goyal, S.

Networks, Markets and Inequality

American Economic Review

Vol. 107(1) pp. 1-30 (2017)

Abstract: The interaction between community and markets remains a central theme in the social sciences. The empirical evidence is rich: in some instances, markets strengthen social ties, while in others they undermine them. The impact of markets on inequality and welfare also varies widely. This paper develops a model where individuals in a social network choose whether to participate in their network and whether to participate in the market. We show that individual behavior is defined by the q-core of the network and the key to understanding the conflicting evidence is whether the market and the network are complements or substitutes.

Author links: Sanjeev Goyal

Publisher's Link: http://dx.doi.org/10.1257/aer.20150635