Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/150125
Authors: 
Board, Simon
Year of Publication: 
2009
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 4 [Year:] 2009 [Issue:] 1 [Pages:] 89-125
Abstract: 
In a range of settings, private firms manage peer effects by sorting agents into different groups, be they schools, communities, or product categories. This paper considers such a firm, which controls group entry by setting a series of anonymous prices. We show that private provision systematically leads to two distortions relative to the efficient solution: first, agents are segregated too finely; second, too many agents are excluded from all groups. We demonstrate that these distortions are a consequence of anonymous pricing and do not depend upon the nature of the peer effects. This general approach also allows us to assess the way the `returns to scale' of peer technology and the cost of group formation affect the optimal group structure.
Subjects: 
Mechanism design
peer effects
public goods
network effects
JEL: 
D82
H40
L12
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/3.0
Document Type: 
Article

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