Identification of a Rank-dependent Peer Effect Model
Econometrics
2025-03-04 v2
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.
Cite
@article{arxiv.2410.14317,
title = {Identification of a Rank-dependent Peer Effect Model},
author = {Eyo I. Herstad and Myungkou Shin},
journal= {arXiv preprint arXiv:2410.14317},
year = {2025}
}