Identity and Social Distance in Friendship Formation

We analyze a network formation model where agents belong to different communities. Both individual benefits and costs depend on direct as well as indirect connections. Benefits of an indirect connection decrease with distance in the network while the cost of a link depends on the type of agents involved. Two individuals from the same community always face a low linking cost and the cost of forming a relationship for two individuals of different communities diminishes with the rate of exposure of each of them to the other community. We derive a number of results with regard to equilibrium networks. In particular, socialization among the same type of agents can be weak even if the within-type link cost is very low and oppositional identity patterns can arise for a wide range of parameters. Our model also suggests that policies aiming at reducing segregation are socially desirable only if they reduce the within-community cost differential by a sufficiently large amount.