Monopolistic Group Design with Peer Effects
In a range of settings, private firms manage peer effects by sorting agents into different groups, be they schools, neighbourhoods or teams. 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.
|Date of creation:||14 Jan 2007|
|Date of revision:|
|Contact details of provider:|| Postal: 150 St. George Street, Toronto, Ontario|
Phone: (416) 978-5283
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wolfgang Pesendorfer, 1993.
"Design Innovation and Fashion Cycles,"
1049, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Helen F. Ladd, 2002. "School Vouchers: A Critical View," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 3-24, Fall.
- Eric A. Hanushek & John F. Kain & Jacob M. Markman & Steven G. Rivkin, 2001.
"Does Peer Ability Affect Student Achievement?,"
NBER Working Papers
8502, National Bureau of Economic Research, Inc.
- Armin Falk & Andrea Ichino, 2006.
"Clean Evidence on Peer Effects,"
Journal of Labor Economics,
University of Chicago Press, vol. 24(1), pages 39-58, January.
- Armen A. Alchian & Harold Demsetz, 1971.
"Production, Information Costs and Economic Organizations,"
UCLA Economics Working Papers
10A, UCLA Department of Economics.
- Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
- Richard Arnott & John Rowse, 1982.
"Peer Group Effects and Educational Attainment,"
497, Queen's University, Department of Economics.
- Nicola Persico, 2000.
"Information Acquisition in Auctions,"
Econometric Society, vol. 68(1), pages 135-148, January.
- Thomas J. Nechyba, 2000. "Mobility, Targeting, and Private-School Vouchers," American Economic Review, American Economic Association, vol. 90(1), pages 130-146, March.
- Edward P. Lazear, 2001. "Educational Production," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 777-803.
- Alexandre Mas & Enrico Moretti, 2009.
"Peers at Work,"
American Economic Review,
American Economic Association, vol. 99(1), pages 112-45, March.
- Mas, Alexandre & Moretti, Enrico, 2006. "Peers at Work," CEPR Discussion Papers 5870, C.E.P.R. Discussion Papers.
- Alexandre Mas & Enrico Moretti, 2006. "Peers at Work," NBER Working Papers 12508, National Bureau of Economic Research, Inc.
- Mas, Alexandre & Moretti, Enrico, 2006. "Peers at Work," IZA Discussion Papers 2292, Institute for the Study of Labor (IZA).
- 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.
- Bruce Sacerdote, 2001.
"Peer Effects with Random Assignment: Results for Dartmouth Roommates,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 116(2), pages 681-704.
- Bruce Sacerdote, 2000. "Peer Effects with Random Assignment: Results for Dartmouth Roommates," NBER Working Papers 7469, National Bureau of Economic Research, Inc.
- Henderson, Vernon & Mieszkowski, Peter & Sauvageau, Yvon, 1978. "Peer group effects and educational production functions," Journal of Public Economics, Elsevier, vol. 10(1), pages 97-106, August.
- Damiano, Ettore & Li, Hao, 2005.
Microeconomics.ca working papers
damiano-05-01-25-10-08-07, Vancouver School of Economics, revised 18 Oct 2005.
- Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
- Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 551-575.
- 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.
When requesting a correction, please mention this item's handle: RePEc:tor:tecipa:tecipa-276. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer)
If references are entirely missing, you can add them using this form.