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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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    Citations

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    Cited by:

    1. Arcidiacono, Peter & Nicholson, Sean, 2005. "Peer effects in medical school," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 327-350, February.
    2. 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.
    3. Prescott, Edward C. & Shell, Karl, 2002. "Introduction to Sunspots and Lotteries," Journal of Economic Theory, Elsevier, vol. 107(1), pages 1-10, November.
    4. Thomas J. Nechyba, 2000. "Mobility, Targeting, and Private-School Vouchers," American Economic Review, American Economic Association, vol. 90(1), pages 130-146, March.
    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, vol. 89(2), pages 300-312, May.
    6. Edward P. Lazear, 1999. "Educational Production," NBER Working Papers 7349, National Bureau of Economic Research, Inc.
    7. 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.

    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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