Economic Theory and Experimental Seminar - Philip Ushchev (Monash University)

Room 605, Level 6, 111 Barry Street, Carlton

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Alex Nichifor

nichifor@unimelb.edu.au

T: +61 3 8344 7420

Title:  Social Norms in Networks (joint with Yves Zenou)

Abstract:  Although the linear-in-means model is the workhorse model in empirical work on peer effects, its theoretical properties are understudied. In this paper, we investigate how social norms affect individual effort, aggregate effort, and welfare. While individual productivity always positively affects own effort and utility, we show that taste for conformity has an ambiguous effect on individual outcomes and depends on whether an individual is above or below her own social norm. Equilibria are usually inefficient and, to restore the first best, the planner subsidizes (taxes) agents whose neighbors make efforts above (below) the social norms in equilibrium. Thus, provision of more subsidies to more central agents is not necessarily efficient.