Working Paper: CEPR ID: DP13250
Authors: Philip Ushchev; Yves Zenou
Abstract: Although the linear-in-means model is the workhorse model in empirical work on peer effects, its theoretical properties are understudied. In this paper, we investigate how social norms affect individual effort, aggregate effort, and welfare. Whileindividual productivity always positively affects own effort and utility, we show that taste for conformity has an ambiguous effect on individual outcomes and depends on whether an individual is above or below her own social norm. Equilibria areusually inefficient and, to restore the first best, the planner subsidizes (taxes) agents whose neighbors make efforts above (below) the social norms in equilibrium. Thus, provision of more subsidies to more central agents is not necessarily efficient.
Keywords: networks; social norms; welfare
JEL Codes: D85; J15; Z13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| social norms (Z13) | individual effort (D29) |
| social norms (Z13) | individual welfare (I30) |
| individual effort (D29) | individual welfare (I30) |
| social norms (Z13) | Nash equilibria (C72) |
| Nash equilibria (C72) | social optimal outcomes (D61) |
| subsidies/taxes (H20) | restore first best (Y60) |
| central agents (L85) | negative externalities (D62) |