Networks: an economic perspective

What is the role of social networks in driving persistent differences between races and genders in education and labor market outcomes? What is the role of homophily in such differences? Why is such homophily seen even if it ends up with negative consequences in terms of labor markets? This chapter discusses social network analysis from the perspective of economics. The chapter is organized around the theme of externalities: the effects that one’s behavior has on others’ welfare. Externalities underlie the interdependencies that make networks interesting to social scientists. This chapter discusses network formation, as well as interactions between people’s behaviors within a given network, and the implications in a variety of settings. Finally, the chapter highlights some empirical challenges inherent in the statistical analysis of network-based data.