Indonesia | Economics

Sunday, September 17, 2006

Peer effects at work

Discussions of peer effects keep coming back here. I started with this post on research excellence, followed by this post on scholarship allocation.

Then, this morning, I found Greg Mankiw reviewing two recent findings on peer effects. Two separate studies reviewed found that: a) a person works harder when he has hard-working peers; and b) exposure to older peers and relatively less supervision have deleterious consequences to sixth-graders. These results question the assumption of the uncorelatedness of utility functions held by most economists.

With regards to child-rearing, the topic is discussed in Judith Rich Harris's excellent The Nurture Assumption. Meanwhile on the national scene, the recent controversial policy on creating an industrial estate (reported here and here in Kompas) is, in essence, an effort to bank on peer effects at firm levels (also known as agglomeration).

Like Mankiw said, peer effects is a hot research topic. Doctorate candidates looking for research topics, take heed!

Update (9/20): Muli questions my depiction of the industrial estate policy as an example of peer effects here. I think he is right -- it is an example of banking on the economies of scale (both are examples of increasing returns).


  • Arya, I am not looking for a research topic. Rather, I am trying hard to level myself with my hard-working peers...:-)

    By Anonymous philips vermonte, at 9/18/2006 02:40:00 pm  

  • Arya,

    I don't think what the government has in mind through the proposed industrial estate law (RPP KI) is "banking on peer effects at firm levels," but rather 'order' and (supposedly) easier control of pollution. My favorite books on industrial agglomeration & spillover effects on firms are Storper and Walker's The Capitalist Imperative and Saxenian's Regional Advantage. The latter specifically looks at Silicon Valley and Boston's Route 128. These two books explain why industries do not just agglomerate randomly. Any industry's location is based on careful planning & strategizing done the industry based on its specific interests. Moreover, natural agglomerations & further regional growth that result from peer effects and intra-industry trade (among a number of factors) happen over a period of time. That's why many attempts to "recreate Silicon Valley" elsewhere have failed.

    Not commenting on the pollution control issue, I think RPP KI is extremely harmful for, and possibly an insult to, industries.

    Anyways, it's interesting that you should use the term "agglomeration" rather than "cluster". Someone told me once that although they mean the same the former is normally used by geographers and the latter economists :)

    By Blogger Muli, at 9/19/2006 08:23:00 am  

  • Philips,
    And by doing so, you work so hard that you don't update your blog so often anymore... ;-)

    On the second thought, I think you're right. Instead, I should have written "the law is aimed to bank on the economies of scale (maximising positive externalities, i.e., infrastructure; and negative externalities, i.e., pollution and preman management)".

    Because both exhibit increasing returns, I somehow mix them up in my head. I'll update my post.

    I don't have a final verdict yet on whether RPP-KI is justified. In general, it seems to reflect more the government's need with little consideration of the needs of the industries, but I have think some more.

    I think "agglomeration" is, per Krugman, now part of economists' parlance, while "cluster" is (perhaps) more of policymakers'.

    By Blogger Arya, at 9/19/2006 06:41:00 pm  

  • an aside from psychology, the excellency of rich harris' "the nurture assumption" is still debatable, especially in the academic world of developmental psychology. here's an exchange of emails between her and jerry kagan, one of the towering figures in the field: take home message: distangling peer-effect from genetic and parental influence is far from easy -- so perhaps this would ring a caution bell to economists too...

    By Anonymous tirta, at 9/21/2006 07:31:00 pm  

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