Identification and estimation of asymmetries in peer effects for binary outcomes

Mathieu Lambotte

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

Abstract: We introduce asymmetry in the analysis of peer effects stemming from a taste for conformity. Indeed, overdoing and underdoing relatively to the social norm might lead to asymmetric social costs of deviating from the norm. The magnitude and direction of this asymmetry depends on the behavior under scrutiny. We develop conditions under which this network game results in a unique Bayes-Nash equilibrium depending on rational expectations about peers’ behavior and propose an estimation strategy based on a nested fixed point maximum likelihood estimator. The model is applied to data on smoking and alcohol consumption of secondary school students in the United States. Using the estimated parameters, we estimate the subsidies a social planner should provide to restore players’ first-best strategies. Empirical evidence converges to indicate that assuming a symmetric social distance function in peer effects model might be misleading.

Keywords: peer effects; asymmetry; social norm; binary outcome; rational expectations (search for similar items in EconPapers)
JEL-codes: C31 C35 C57 C72 D84 (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-gth, nep-net and nep-ure
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