Targeted socialization and production Facundo

We study a model that integrates productive and socialization efforts with network choice and parental investments. We characterize the unique symmetric equilibrium of this game. Individuals underinvest in productive and social effort. However, solving only the investment problem can exacerbate the misallocations due to network choice, to the point that in the presence of congestion effects the intervention may generate an even lower social welfare than no intervention at all. We also study the interaction of parental investment with network choice. In many scenarios, intergenerational transmission of abilities leads to a tendency towards to conformism, which aggravates potential problems of network overpopulation. We relate our equilibrium results with the existing evidence on parental occupational transmission. JEL-Classification: D85, I20, I28, J15, J24. J61, J62. Key-words: peer effects, network formation, parental involvement, intergenerational mobility, cultural identity, immigrant sorting. ∗Hauk acknowledges financial support from the Spanish Ministry of Economy and Competitiveness through the Severo Ochoa Program for Centers of Excellence in R&D and through CICYT project number ECO2015-67171-P and from the government of Catalonia (2014 SGR 1064). We thank participants at the Barcelona Graduate School of Economics Summer Forum on Economics of Socialization, the Vienna Workshop on Networks and Social Norms, the PEPA-CEMMAP Workshop on social networks, the Murat Sertel lecture at the ASSET conference, and seminar audiences at the universities of Bath, Bonn, Bristol, Leicester, Louvain-la-Neuve, San Andrés and York for helpful comments. Pablo Warnes and Ezequiel Garćıa Lembergman provided outstanding assistance. †University of Nottingham and CONICET; [email protected] ‡University College London; email: [email protected] §Instituto de Análisis Económico (IAE-CSIC) and Barcelona Graduate School of Economics; email: [email protected]