IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpem/0408002.html
   My bibliography  Save this paper

Simulation-based estimation of peer effects

Author

Listed:
  • Brian Krauth

    (Simon Fraser University)

Abstract

The influence of peer behavior on an individual's choices has received renewed interest in recent years. However, accurate measures of this influence are difficult to obtain. Standard reduced-form methods lead to upwardly biased estimates due to simultaneity, common shocks, and nonrandom peer group selection. This paper describes a structural econometric model of peer effects in binary choice, as well as a simulated maximum likelihood estimator for its parameters. The model is nonparametrically identified under plausible restrictions, and can place informative bounds on parameter values under much weaker restrictions. Monte Carlo results indicate that this estimator performs better than a reduced form approach in a wide variety of settings. A brief application to youth smoking demonstrates the method and suggests that previous studies dramatically overstate peer influence.

Suggested Citation

  • Brian Krauth, 2004. "Simulation-based estimation of peer effects," Econometrics 0408002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpem:0408002
    Note: Type of Document - pdf; pages: 40
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/em/papers/0408/0408002.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Edward L. Glaeser & Bruce Sacerdote & José A. Scheinkman, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(2), pages 507-548.
    2. Brock, William A. & Durlauf, Steven N., 2001. "Interactions-based models," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 54, pages 3297-3380, Elsevier.
    3. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2005. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 151-184, February.
    4. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
    5. Edward C. Norton & Richard C. Lindrooth & Susan T. Ennett, 1998. "Controlling for the endogeneity of peer substance use on adolescent alcohol and tobacco use," Health Economics, John Wiley & Sons, Ltd., vol. 7(5), pages 439-453, August.
    6. George A. Akerlof & Rachel E. Kranton, 2000. "Economics and Identity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 715-753.
    7. William A. Brock & Steven N. Durlauf, 2001. "Discrete Choice with Social Interactions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(2), pages 235-260.
    8. Edward L. Glaeser & Bruce I. Sacerdote & Jose A. Scheinkman, 2003. "The Social Multiplier," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 345-353, 04/05.
    9. Marianne Bertrand & Erzo F. P. Luttmer & Sendhil Mullainathan, 2000. "Network Effects and Welfare Cultures," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 1019-1055.
    10. Michael Kremer & Dan Levy, 2008. "Peer Effects and Alcohol Use among College Students," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 189-206, Summer.
    11. Alejandro Gaviria & Steven Raphael, 2001. "School-Based Peer Effects And Juvenile Behavior," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 257-268, May.
    12. Brian Krauth, 2006. "Social interactions in small groups," Canadian Journal of Economics, Canadian Economics Association, vol. 39(2), pages 414-433, May.
    13. Ioannides, Yannis M. & Zabel, Jeffrey E., 2008. "Interactions, neighborhood selection and housing demand," Journal of Urban Economics, Elsevier, vol. 63(1), pages 229-252, January.
    14. Lawrence F. Katz & Jeffrey R. Kling & Jeffrey B. Liebman, 2001. "Moving to Opportunity in Boston: Early Results of a Randomized Mobility Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(2), pages 607-654.
    15. Hajivassiliou, Vassilis & McFadden, Daniel & Ruud, Paul, 1996. "Simulation of multivariate normal rectangle probabilities and their derivatives theoretical and computational results," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 85-134.
    16. Giorgio Topa, 2001. "Social Interactions, Local Spillovers and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(2), pages 261-295.
    17. Joseph G. Altonji & Ching-I Huang & Christopher R. Taber, 2015. "Estimating the Cream Skimming Effect of School Choice," Journal of Political Economy, University of Chicago Press, vol. 123(2), pages 266-324.
    18. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387, September.
    19. Elie Tamer, 2003. "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(1), pages 147-165.
    20. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 531-542.
    21. William N. Evans & Wallace E. Oates & Robert M. Schwab & William N. Evans & Wallace E. Oates & Robert M. Schwab, 2004. "Measuring Peer Group Effects: A Study of Teenage Behavior," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 13, pages 232-257, Edward Elgar Publishing.
    22. Jovanovic, Boyan, 1989. "Observable Implications of Models with Multiple Equilibria," Econometrica, Econometric Society, vol. 57(6), pages 1431-1437, November.
    23. Bruce Sacerdote, 2001. "Peer Effects with Random Assignment: Results for Dartmouth Roommates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(2), pages 681-704.
    24. Caroline Hoxby, 2000. "Peer Effects in the Classroom: Learning from Gender and Race Variation," NBER Working Papers 7867, National Bureau of Economic Research, Inc.
    25. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
    26. Edward C. Norton & Richard C. Lindrooth & Susan T. Ennett, 2003. "How measures of perception from survey data lead to inconsistent regression results: evidence from adolescent and peer substance use," Health Economics, John Wiley & Sons, Ltd., vol. 12(2), pages 139-148, February.
    27. Bhat, Chandra R., 2003. "Simulation estimation of mixed discrete choice models using randomized and scrambled Halton sequences," Transportation Research Part B: Methodological, Elsevier, vol. 37(9), pages 837-855, November.
    28. Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1077-1125, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. ÖZGÜR, Onur & BISIN, Alberto, 2011. "Dynamic Linear Economies with Social Interactions," Cahiers de recherche 04-2011, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    2. Steven N. Durlauf & Yannis M. Ioannides, 2010. "Social Interactions," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 451-478, September.
    3. Adriaan R. Soetevent, 2006. "Empirics of the Identification of Social Interactions; An Evaluation of the Approaches and Their Results," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 193-228, April.
    4. Patrick Bayer & Stephen L. Ross & Giorgio Topa, 2008. "Place of Work and Place of Residence: Informal Hiring Networks and Labor Market Outcomes," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1150-1196, December.
    5. Kling, Jeffrey & Liebman, Jeffrey, 2004. "Experimental Analysis of Neighborhood Effects on Youth," Working Paper Series rwp04-034, Harvard University, John F. Kennedy School of Government.
    6. Jose-Alberto Guerra & Myra Mohnen, 2022. "Multinomial Choice with Social Interactions: Occupations in Victorian London," The Review of Economics and Statistics, MIT Press, vol. 104(4), pages 736-747, October.
    7. Brian Krauth, 2005. "Peer effects and selection effects on smoking among Canadian youth," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 735-757, August.
    8. Krauth, Brian V., 2007. "Peer and Selection Effects on Youth Smoking in California," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 288-298, July.
    9. Brock, William A. & Durlauf, Steven N., 2007. "Identification of binary choice models with social interactions," Journal of Econometrics, Elsevier, vol. 140(1), pages 52-75, September.
    10. Duncan McVicar & Arnold Polanski, 2010. "Estimating Peer Influences in Teenage Substance Use when Friendship Links are Unobserved," Economics Working Papers 10-04, Queen's Management School, Queen's University Belfast.
    11. Bruce A. Weinberg, 2007. "Social Interactions with Endogenous Associations," NBER Working Papers 13038, National Bureau of Economic Research, Inc.
    12. Brock,W.A. & Durlauf,S.N., 2005. "Social interactions and macroeconomics," Working papers 5, Wisconsin Madison - Social Systems.
    13. Giulio Zanella, 2004. "Discrete Choice with Social Interactions and Endogenous Memberships," Department of Economics University of Siena 442, Department of Economics, University of Siena.
    14. Patrick Bayer & Stephen L. Ross, 2006. "Identifying Individual and Group Effects in the Presence of Sorting: A Neighborhood Effects Application," Working papers 2006-13, University of Connecticut, Department of Economics, revised Jan 2009.
    15. Kang, Changhui, 2007. "Classroom peer effects and academic achievement: Quasi-randomization evidence from South Korea," Journal of Urban Economics, Elsevier, vol. 61(3), pages 458-495, May.
    16. Blume,L.E. & Durlauf,S.N., 2005. "Identifying social interactions : a review," Working papers 12, Wisconsin Madison - Social Systems.
    17. Ana Balsa & Carlos Díaz, 2018. "Social interactions in health behaviors and conditions," Documentos de Trabajo/Working Papers 1802, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
    18. Clark, Andrew E. & Loheac, Youenn, 2007. ""It wasn't me, it was them!" Social influence in risky behavior by adolescents," Journal of Health Economics, Elsevier, vol. 26(4), pages 763-784, July.
    19. Gordon B. Dahl & Katrine V. L?ken & Magne Mogstad, 2014. "Peer Effects in Program Participation," American Economic Review, American Economic Association, vol. 104(7), pages 2049-2074, July.
    20. Grodner, Andrew & Kniesner, Thomas J. & Bishop, John A., 2011. "Social Interactions in the Labor Market," Foundations and Trends(R) in Microeconomics, now publishers, vol. 6(4), pages 265-366, September.

    More about this item

    Keywords

    social interactions; peer effects; neighborhood effects;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpem:0408002. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.