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Regular version of the site

Article

Social Norms in Networks

Journal of Economic Theory . 2020. Vol. 185. P. 104969.
Ushchev P., Zenou Y.

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 microfoundation 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 ineffcient and, to restore the rst 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 effcient. We also discuss the
policy implications of our model in terms of education and crime.