Self-Selection and Comparative Advantage in Social Interactions

Citation:

Cicala S, Roland G. Fryer J, Spenkuch JL. Self-Selection and Comparative Advantage in Social Interactions. Working Paper.

Abstract:

We propose a model of social interactions based on self-selection and comparative advantage. When students choose peer groups based on comparative advantage, the effect of moving a student into an environment with higher-achieving peers depends on where in the ability distribution she falls and the shadow prices that clear the social market. We show that the model’s key prediction—an individual’s ordinal rank predicts her behavior and test scores—is borne out in one randomized controlled trial in Kenya as well as administrative data from the U.S. To test whether our selection mechanism can explain the effect of rank on outcomes, we conduct an experiment with nearly 600 public school students in Houston. The experimental results suggest that social interactions are mediated by self-selection based on comparative advantage.

Last updated on 11/21/2016