Abstract

This chapter studies some recent developments and challenges in the empirics of the effects of social networks. The authors focus in particular on researchers’ ability to make policy recommendations based on a standard linear econometric model. The chapter examines the potential compatibility between this type of econometric model and a microeconomic theoretical approach based on fundamentals, such as preferences, technology, and decision processes. The chapter discusses sources of identification for the social multiplier as well as for the identity of the key player. The authors study the possibility of testing endogeneity in network formation. The chapter analyzes the use of proxy variables and their impact for the causal interpretation of peer effect coefficients. This analysis suggests that greater care should be taken in grounding econometric network models to sound and credible theoretical underpinnings.