How Competition Shapes Peer Effects: Evidence from a University in China

Abstract

Competition is widely used to increase effort and performance. However, in many domains, performance not only depends on individual effort but also on cooperation between agents. In such cases, competition may decrease individual performance because it may weaken the cooperation between agents as the chance of winning a competition decreases with the success of peers. Education is a natural setting in which help from others can enhance individual performance. Using administrative data from a university in China, this paper examines how competition changes peer effects and peer interactions. Exploiting randomly assigned roommates, we first show that high-ability roommates have slightly detrimental effects on the academic performance of high-ability students. More importantly, we provide novel evidence that negative peer effects significantly increase along various dimensions of competition intensity within dorm rooms. We conducted a survey to investigate potential mechanisms. The survey results reveal that competition discourages help and induces unfriendly behaviours among roommates, which may explain our findings. Our study suggests that we cannot take peer effects as fixed, but rather as being shaped by the competitive nature of the environment.

Keywords: Competition, Peer effects, Higher education

JEL Classification: I21; I23; M50