Choosing peers: Homophily and polarization in groups

TitleChoosing peers: Homophily and polarization in groups
Publication TypeJournal Article
Year of Publication2016
AuthorsBaccara M, Yariv L
JournalJournal of Economic Theory
Volume165
Pagination152–178
ISSN10957235
KeywordsHomophily, Mutually optimal groups, Peer groups, Public goods, Tiebout
AbstractThis paper studies the formation of peer groups entailing the joint production of public goods. In our model agents choose their peers and have to pay a connection cost for each member added to the group. After groups are formed, each agent selects a public project to make a costly contribution to, and all members of the group experience the benefits of these contributions. Since agents differ in how much they value one project relative to the other, the group's preferences affect the generated profile of public goods. We characterize mutually optimal groups, groups that are optimal for all their members. When contribution costs are low relative to connection costs, mutually optimal groups must be sufficiently homogeneous. As contribution costs increase relative to connection costs, agents desire more connections, which in turn raises the risk of free riding. Extreme peers are then more appealing, since they are more willing to contribute, and polarization arises.
URLhttps://www.sciencedirect.com/science/article/pii/S002205311630014X
DOI10.1016/j.jet.2016.04.005