Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/210943
Authors: 
Ushchev, Philip
Zenou, Yves
Year of Publication: 
2019
Series/Report no.: 
IFN Working Paper 1302
Abstract: 
Although the linear-in-means model is the workhorse model in empirical work on peer effects, its theoretical properties are understudied. In this study, we develop a social-norm model that provides a micro foundation of the linear-in-means model and investigate its properties. We show that individual outcomes may increase, decrease, or vary non-monotonically with the taste for conformity. Equilibria are usually inefficient and, to restore the first best, the planner needs to subsidize (tax) agents whose neighbors make efforts above (below) the social norms. Thus, giving more subsidies to more central agents is not necessarily efficient. We also discuss the policy implications of our model in terms of education and crime.
Subjects: 
Social norms
Conformism
Local-average model
Welfare
Anti-conformism
Network formation
JEL: 
D85
J15
Z13
Document Type: 
Working Paper

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