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Peer group effects in applied general equilibrium

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  • Elizabeth M. Caucutt

    () (Department of Economics,University of Rochester, Rochester, NY, 14627, USA)

Abstract

In this paper, I develop an applied general equilibrium environment with peer group effects. The application I consider is schooling. The framework used here is general equilibrium with clubs. I establish the existence of equilibrium for the economy with a finite number of school types. This result is then extended to the case where the set of school types is a continuum. The two welfare theorems are shown to hold for both economies. To compute the equilibrium, I construct a Negishi mapping from the set of weights on individual type's utility to the set of transfers that support the corresponding Pareto allocations as competitive equilibria with transfers. Because this mapping is a correspondence, a version of Scarf's algorithm is used to find a competitive equilibrium.

Suggested Citation

  • Elizabeth M. Caucutt, 2001. "Peer group effects in applied general equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 17(1), pages 25-51.
  • Handle: RePEc:spr:joecth:v:17:y:2001:i:1:p:25-51 Note: Received: June 9, 1999; revised version: March 13, 2000
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    References listed on IDEAS

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    1. Duffie, Darrell & Zame, William, 1989. "The Consumption-Based Capital Asset Pricing Model," Econometrica, Econometric Society, pages 1279-1297.
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    4. Schweizer, Martin, 1992. "Martingale densities for general asset prices," Journal of Mathematical Economics, Elsevier, vol. 21(4), pages 363-378.
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    6. Duffie, Darrell, 1991. "The theory of value in security markets," Handbook of Mathematical Economics,in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 31, pages 1615-1682 Elsevier.
    7. Knut K. Aase, 2002. "Equilibrium Pricing in the Presence of Cumulative Dividends Following a Diffusion," Mathematical Finance, Wiley Blackwell, vol. 12(3), pages 173-198.
    8. repec:dau:papers:123456789/13604 is not listed on IDEAS
    9. Huang, Chi-fu, 1985. "Information structures and viable price systems," Journal of Mathematical Economics, Elsevier, vol. 14(3), pages 215-240, June.
    10. Nielsen, Lars Tyge, 1999. "Pricing and Hedging of Derivative Securities," OUP Catalogue, Oxford University Press, number 9780198776192.
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    Citations

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    Cited by:

    1. Arcidiacono, Peter & Nicholson, Sean, 2005. "Peer effects in medical school," Journal of Public Economics, Elsevier, pages 327-350.
    2. Edward P. Lazear, 1999. "Educational Production," NBER Working Papers 7349, National Bureau of Economic Research, Inc.
    3. Thomas J. Nechyba, 1999. "A Model of Multiple Districts and Private Schools: The Role of Mobility, Targeting, and Private School Vouchers," NBER Working Papers 7239, National Bureau of Economic Research, Inc.
    4. Thomas J. Nechyba, 2003. "Introducing School Choice into Multidistrict Public School Systems," NBER Chapters,in: The Economics of School Choice, pages 145-194 National Bureau of Economic Research, Inc.
    5. Weili Ding & Steven F. Lehrer, 2007. "Do Peers Affect Student Achievement in China's Secondary Schools?," The Review of Economics and Statistics, MIT Press, pages 300-312.
    6. Rod Garratt & Todd Keister & Karl Shell, 2004. "Comparing Sunspot Equilibrium And Lottery Equilibrium Allocations: The Finite Case," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 351-386, May.
    7. Prescott, Edward C. & Shell, Karl, 2002. "Introduction to Sunspots and Lotteries," Journal of Economic Theory, Elsevier, vol. 107(1), pages 1-10, November.
    8. Thomas J. Nechyba, 2000. "Mobility, Targeting, and Private-School Vouchers," American Economic Review, American Economic Association, pages 130-146.

    More about this item

    Keywords

    Education; Peer effects; Applied general equilibrium; Clubs.;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • I2 - Health, Education, and Welfare - - Education

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