The goal of this research project is to study the importance of social network effects on consumption behavior by bringing in modern empirical identification strategies, more appropriate data, and an analysis of the economic mechanisms underlying network effects. The questions we want to address are:
(a) How large are consumption network effects?
(b) How important is heterogeneity?
(c) What economic mechanism explains the co-movement of individual and peers’ consumption?
(d) What are the aggregate implications?
We approach these questions using large scale administrative data for the population of Denmark coupled with matched consumption survey data. Our work has the potential to change the way the economics profession thinks about the dynamics of consumption behavior.