Social Interactions In Empirical Microeconomics

This dissertation studies the effects of social interactions in two different areas of empirical microeconomics. The first chapter focuses on the effects of decentralized provision of public goods by a variety of state and non-governmental agencies in developing countries. In particular, I find evidence of strategic interactions between neighboring communities in the provision of water in rural Tanzania: communities simultaneously free ride on, and receive positive spillovers from, each other's investments in public goods. In order to disentangle these two effects, I model the maintenance of pumps as a network game between neighboring communities, and estimate the model using geo-coded data. Decentralized provision of public goods is costly in this setting, and I estimate that greater coordination between organizations installing water pumps would increase pump functionality rates, and result in modest improvements in school attendance and child survival rates. The second chapter, which is co-authored, is methodological, and analyzes the evaluation of programs and policies in the presence of strategic interactions. We show that reduced form estimates of the direct effects and spillover effects of treatment are biased in settings where there are strategic interactions between the individuals affected by the program, even if researchers have valid instruments for individual treatment and neighbors' treatment. We develop a two-step procedure to test for and correct this bias. The first step tests for strategic interactions, by estimating a simple regression of individual treatment on neighbors' treatment. The second step uses a simple model to identify the structural parameters and estimate the true effects of treatment.