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Monopolistic group design with peer effects

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  • Board, Simon

    ()
    (Department of Economics, University of California Los Angeles)

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.

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Bibliographic Info

Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 4 (2009)
Issue (Month): 1 (March)
Pages:

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Handle: RePEc:the:publsh:413

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Web page: http://econtheory.org

Related research

Keywords: Mechanism design; peer effects; public goods; network effects;

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References

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  1. Thomas J. Nechyba, 2000. "Mobility, Targeting, and Private-School Vouchers," American Economic Review, American Economic Association, vol. 90(1), pages 130-146, March.
  2. Mas, Alexandre & Moretti, Enrico, 2006. "Peers at Work," CEPR Discussion Papers 5870, C.E.P.R. Discussion Papers.
  3. William C. Strange & Robert W. Helsley, 2000. "Social Interactions and the Institutions of Local Government," American Economic Review, American Economic Association, vol. 90(5), pages 1477-1490, December.
  4. Nicola Persico, 1997. "Information Acquisition in Auctions," UCLA Economics Working Papers 762, UCLA Department of Economics.
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  6. Richard Arnott & John Rowse, 1982. "Peer Group Effects and Educational Attainment," Working Papers 497, Queen's University, Department of Economics.
  7. Bruce Sacerdote, 2001. "Peer Effects With Random Assignment: Results For Dartmouth Roommates," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 681-704, May.
  8. Pesendorfer, Wolfgang, 1995. "Design Innovation and Fashion Cycles," American Economic Review, American Economic Association, vol. 85(4), pages 771-92, September.
  9. Damiano, Ettore & Li, Hao, 2005. "Competing Matchmaking," Microeconomics.ca working papers damiano-05-01-25-10-08-07, Vancouver School of Economics, revised 18 Oct 2005.
  10. Edward P. Lazear, 1999. "Educational Production," NBER Working Papers 7349, National Bureau of Economic Research, Inc.
  11. Armin Falk & Andrea Ichino, 2004. "Clean Evidence on Peer Effects," Levine's Bibliography 666156000000000439, UCLA Department of Economics.
  12. Helen F. Ladd, 2002. "School Vouchers: A Critical View," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 3-24, Fall.
  13. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March.
  14. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
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  17. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
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Cited by:
  1. Renato Gomes & Alessandro Pavan, 2013. "Cross-Subsidization and Matching Design," Discussion Papers 1559, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Thomas Gall & Patrick Legros & Andrew F. Newman, 2009. "Mis-match, Re-match, and Investment," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-189, Boston University - Department of Economics.
  3. Terence Johnson, 2009. "Matching Through Position Auctions," Working Papers 001, University of Notre Dame, Department of Economics, revised Jan 2011.
  4. Rogério Mazali & José Rodrigues-Neto, 2011. "Dress to Impress: Brands as Status Symbols," ANU Working Papers in Economics and Econometrics 2011-567, Australian National University, College of Business and Economics, School of Economics.
  5. Johnson, T.R., 2013. "Matching through position auctions," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1700-1713.
  6. Jan Eeckhout, 2012. "Matching Information," 2012 Meeting Papers 835, Society for Economic Dynamics.

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