Research Area

Peer Effects Via Networks

Aerial view of a suburban street with trees and houses.

We research how consumption behaviour affects the behaviour of linked individuals

Peer effects have important consequences in consumption patterns. Network theory has been used to study how neighbours affect the consumption of conspicuous goods and also how this affects migration.

Peers influence on individual behaviour has been widely investigated in the economics literature but in most cases individual heterogeneity is confined to wealth, or wage income, and network position. Importantly, in the case of conspicuous goods not all “peer” matter and some matter more than others. A plausible explanation is that individuals may only be affected by peers of a similar identity and the peers they are particularly attached to may matter more than other peers.   

However, as in the rest of the literature, individual heterogeneity is confined to wealth, or wage income, and network position. Clearly, in the case of conspicuous goods identity plays a major role. For example, identity has been shown to be relevant in peer effects, as for example that black Americans consume more envy goods. We are interested in how identity interacts with the network to produce outcomes. Even more, we want to use data on friendships to evaluate the extent of this. Knowing this has big implications. Firms may be able to target better the individuals sensitive to comparison concerns. And social policies to help alleviate the negative welfare effects of these concerns in specific populations.  

We study how consumption behaviour in some goods but not in others affects the behaviour of linked individuals. This is a situation of multidimensionality of characteristics in a network of individuals. The network provides a novel way to formalise the “peer group” in this situation of “keeping-up-with-the-Joneses”. We focus on the role played by the topology of the network of individual comparisons, for example the network of family ties, on the equilibrium outcome. In this case our multidimensional peer-effect research has shown that the existence of week-ties dominates the outcome. Within the present research this points to the fact that the position of the individual within the friendship network will matter for the peer-effects.

Social identity is at the root of altruism. Our work focuses on altruism within groups defined as individuals with the same social identity. The research shows that in a political economic equilibrium altruism within classes might generate political power. Ultimately, the voted policy, as for example the tax rate, may depend on social identification. We have demonstrated that this may explain why the US has a low tax rate.

The relevance of social identity and social convention is at the root the stability of family conventions. Our research demonstrates that social conventions and therefore identities are subject to evolutionary pressures. 

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Chair of Research Area Dr Myra Mohnen
Department of Economics, University of Essex
Departmental Director of Research Dr Rosella Argenziano
Department of Economics, University of Essex