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Identification and estimation of asymmetries in peer effects for binary outcomes

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  • Mathieu Lambotte

    (Univ Rennes, CNRS, CREM – UMR6211, F-35000 Rennes France)

Abstract

We introduce asymmetry in the analysis of peer effects stemming from a taste for conformity. Indeed, overdoing and underdoing relatively to the social norm might lead to asymmetric social costs of deviating from the norm. The magnitude and direction of this asymmetry depends on the behavior under scrutiny. We develop conditions under which this network game results in a unique Bayes-Nash equilibrium depending on rational expectations about peers’ behavior and propose an estimation strategy based on a nested fixed point maximum likelihood estimator. The model is applied to data on smoking and alcohol consumption of secondary school students in the United States. Using the estimated parameters, we estimate the subsidies a social planner should provide to restore players’ first-best strategies. Empirical evidence converges to indicate that assuming a symmetric social distance function in peer effects model might be misleading.

Suggested Citation

  • Mathieu Lambotte, 2024. "Identification and estimation of asymmetries in peer effects for binary outcomes," Economics Working Paper Archive (University of Rennes & University of Caen) 2024-05, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    • Handle: RePEc:tut:cremwp:2024-05
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    References listed on IDEAS

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    1. Peter Kooreman & Adriaan R. Soetevent, 2007. "A discrete-choice model with social interactions: with an application to high school teen behavior," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(3), pages 599-624.
    2. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
    3. Liu, Xiaodong & Zhou, Jiannan, 2017. "A social interaction model with ordered choices," Economics Letters, Elsevier, vol. 161(C), pages 86-89.
    4. Alberto Bisin & Andrea Moro & Giorgio Topa, 2011. "The empirical content of models with multiple equilibria in economies with social interactions," Staff Reports 504, Federal Reserve Bank of New York.
    5. Lung-fei Lee & Ji Li & Xu Lin, 2014. "Binary Choice Models with Social Network under Heterogeneous Rational Expectations," The Review of Economics and Statistics, MIT Press, vol. 96(3), pages 402-417, July.
    6. Liu, Xiaodong & Patacchini, Eleonora & Zenou, Yves, 2014. "Endogenous peer effects: local aggregate or local average?," Journal of Economic Behavior & Organization, Elsevier, vol. 103(C), pages 39-59.
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    More about this item

    Keywords

    peer effects; asymmetry; social norm; binary outcome; rational expectations;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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