Identity vs. Popularity

This paper models individual choices of social groups and the formation of group identity, and examines the conditions with which the group identity reinforces the productivity of individuals. A social group is defined as a network that provides with a market for interactions to its members. Individuals choose their social groups according to their identity and the expected transaction costs in each group. Due to network externality, there is a higher value of transaction and more socialization for a popular group. Transaction cost in each group is a function of the homogeneity of its members and the popularity of the group. The group productivity defined by the average ability of the members in a social category may be conducive to the popularity of the group when the group members are homogeneous.