Modeling Endogenous Social Effects: A Study of M.B.A. Student Summer Internship Application Choices

Abstract

We study how summer internship application choices of MBA students at a major university are influenced by the application choices made by their fellow students. We develop a simultaneous model of each individual’s choice as a function of other students’ choices. Our model of interdependence in decision making is structural and equilibrium-based. Also, the model is general enough to allow both positive and negative effects of average group choices on any individual’s decision. The structure of our data enables us to identify endogenous social effects separately from exogenous or correlated effects. We employ a two-stage procedure to address the endogeneity of choices: we estimate empirical choice probabilities in the first stage, and taste parameters for hiring firm attributes and peer influence in the second stage. Our results show that as expected, students prefer jobs with strong internship attributes (e.g. high salary, large firm size). In contrast to previous studies, we find negative (rather than positive) social effects. That is, strong attributes also make an internship application less attractive, leading to a lower choice probability relative to cases of zero or positive social effects. These negative social effects are consistent with congestion, i.e. students are aware that a good internship will attract the interest of more students, thus lowering the odds of getting it. These negative social effects are stronger for students with more work experience and stronger GMAT scores.

Keywords: interdependent preferences, endogenous social effects, choice model, negative social effects, congestion in choice, equilibrium models, structural models

JEL Classification: C35, I20, J40, L80, M31, M59