January 2007, Revised: July 29, 2008 | Sergio Currarini, Matthew O. Jackson, Paolo Pin
This paper develops a model of friendship formation to explain segregation patterns in social and economic networks. Individuals have types and benefit from friendships with others of the same type. The model examines the properties of a steady-state equilibrium in a matching process of friendship formation. The authors use the model to understand three empirical patterns of friendship formation: (i) larger groups tend to form more same-type ties and fewer other-type ties than smaller groups, (ii) larger groups form more ties per capita, and (iii) all groups are biased towards same-type relative to demographics, with the most extreme bias coming from middle-sized groups. The model shows how these empirical observations can be generated by biases in preferences and biases in meetings. The welfare implications of the model are also discussed. The paper contributes to the literature on homophily and segregation, providing a systematic investigation of the roles of preferences and matchings in determining homophily patterns in social ties.This paper develops a model of friendship formation to explain segregation patterns in social and economic networks. Individuals have types and benefit from friendships with others of the same type. The model examines the properties of a steady-state equilibrium in a matching process of friendship formation. The authors use the model to understand three empirical patterns of friendship formation: (i) larger groups tend to form more same-type ties and fewer other-type ties than smaller groups, (ii) larger groups form more ties per capita, and (iii) all groups are biased towards same-type relative to demographics, with the most extreme bias coming from middle-sized groups. The model shows how these empirical observations can be generated by biases in preferences and biases in meetings. The welfare implications of the model are also discussed. The paper contributes to the literature on homophily and segregation, providing a systematic investigation of the roles of preferences and matchings in determining homophily patterns in social ties.