Toward a General Theory of Peer Effects

56 Pages Posted: 26 May 2022 Last revised: 31 Jul 2023

See all articles by Vincent Boucher

Vincent Boucher

Université Laval

Michelle Rendall

Monash University

Philip Ushchev

HSE University

Yves Zenou

Monash University - Department of Economics; Research Institute of Industrial Economics (IUI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); Stockholm University

Multiple version iconThere are 2 versions of this paper

Date Written: May 18, 2022

Abstract

There is substantial empirical evidence showing that peer effects matter in many activities. The workhorse model in empirical work on peer effects is the linear-in-means (LIM) model, whereby it is assumed that agents are linearly affected by the mean action of their peers. We provide two different theoretical models (based on spillovers and on conformism behavior) that microfound the LIM model and show that they have very different policy implications. We also develop a new general model of peer effects that relaxes the assumptions of linearity and mean peer behavior and that encompasses the spillover, conformist model, and LIM model as special cases. Then, using data on adolescent activities in the U.S., we structurally estimate this model. We find that for GPA, social clubs, self-esteem, and exercise, the spillover effect strongly dominates, while for risky behavior, study effort, fighting, smoking, and drinking, conformism plays a stronger role. We also find that for many activities, individuals do not behave according to the LIM model. We run some counterfactual policies and show that imposing the mean action as an individual social norm is misleading and leads to incorrect policy implications.

Keywords: Peer effects, spillovers, conformism, structural estimation, policies.

JEL Classification: C31, D04, D85, Z13

Suggested Citation

Boucher, Vincent and Rendall, Michelle and Ushchev, Philip and Zenou, Yves, Toward a General Theory of Peer Effects (May 18, 2022). Available at SSRN: https://ssrn.com/abstract=4113310 or http://dx.doi.org/10.2139/ssrn.4113310

Vincent Boucher

Université Laval ( email )

2214 Pavillon J-A. DeSeve
Quebec, Quebec G1K 7P4
Canada

Michelle Rendall

Monash University

23 Innovation Walk
Wellington Road
Clayton, 3800
Australia

Philip Ushchev

HSE University ( email )

3a Kantemirovskaya St, room 405
123 Griboedov Canal Embankment, room 123
Saint-Petersburg, Saint Petersburg 191119
Russia

HOME PAGE: http://https://sites.google.com/site/philipushchev/

Yves Zenou (Contact Author)

Monash University - Department of Economics ( email )

Australia

Research Institute of Industrial Economics (IUI) ( email )

P.O. Box 5501
S-114 85 Stockholm
Sweden

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

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