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Identification of a Rank-dependent Peer Effect Model

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  • Eyo I. Herstad
  • Myungkou Shin

Abstract

We develop a model that captures peer effect heterogeneity by modeling the endogenous spillover to be linear in ordered peer outcomes. Unlike the canonical linear-in-means model, our approach accounts for the distribution of peer outcomes as well as the size of peer groups. Under a minimal condition, our model admits a unique equilibrium and is therefore tractable and identified. Simulations show our estimator has good finite sample performance. Finally, we apply our model to educational data from Norway, finding that higher-performing friends disproportionately drive GPA spillovers. Our framework provides new insights into the structure of peer effects beyond aggregate measures.

Suggested Citation

  • Eyo I. Herstad & Myungkou Shin, 2024. "Identification of a Rank-dependent Peer Effect Model," Papers 2410.14317, arXiv.org, revised Feb 2025.
    • Handle: RePEc:arx:papers:2410.14317
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    References listed on IDEAS

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    1. Han, Li & Li, Tao, 2009. "The gender difference of peer influence in higher education," Economics of Education Review, Elsevier, vol. 28(1), pages 129-134, February.
    2. Foster, Gigi, 2006. "It's not your peers, and it's not your friends: Some progress toward understanding the educational peer effect mechanism," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1455-1475, September.
    3. Belloni, Alexandre & Hansen, Christian & Newey, Whitney, 2022. "High-dimensional linear models with many endogenous variables," Journal of Econometrics, Elsevier, vol. 228(1), pages 4-26.
    4. Ludovica Gazze & Claudia Persico & Sandra Spirovska, 2024. "The Long-Run Spillover Effects of Pollution: How Exposure to Lead Affects Everyone in the Classroom," Journal of Labor Economics, University of Chicago Press, vol. 42(2), pages 357-394.
    5. Chih‐Sheng Hsieh & Lung Fei Lee, 2016. "A Social Interactions Model with Endogenous Friendship Formation and Selectivity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(2), pages 301-319, March.
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