Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1302: Social Norms in Networks

Philip Ushchev () and Yves Zenou ()
Additional contact information
Philip Ushchev: National Research University, Postal: Higher School of Economics, Russia, and Monash University, Australia
Yves Zenou: Monash Universitiy, Postal: Australia, CEPR and Research Institute of Industrial Economics (IFN), Stockholm, Sweden, , Sweden

Abstract: Although the linear-in-means model is the workhorse model in empirical work on peer effects, its theoretical properties are understudied. In this study, we develop a social-norm model that provides a micro foundation of the linear-in-means model and investigate its properties. We show that individual outcomes may increase, decrease, or vary non-monotonically with the taste for conformity. Equilibria are usually inefficient and, to restore the first best, the planner needs to subsidize (tax) agents whose neighbors make efforts above (below) the social norms. Thus, giving more subsidies to more central agents is not necessarily efficient. We also discuss the policy implications of our model in terms of education and crime.

Keywords: Social norms; Conformism; Local-average model; Welfare; Anti-conformism; Network formation

JEL-codes: D85; J15; Z13

94 pages, November 18, 2019

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