Peer Effects

The term peer effects refers to the inclination of an individual to behave similarly to the behavior of a reference group to which the individual herself belongs. Communication and social interactions with peers, that is, members of the reference group, affect individual behavior, for better and for worse. In the workplace, the productivity of a worker varies depending on the productivity of her coworkers. If a worker’s productivity falls behind her coworkers’ productivity, he may exert more effort to acquire new skills by learning from them. However, in prisons for example, interaction with peers may have adverse effects, if inmates build criminal capital by learning from one another.

Individuals also rely on their peers as a source of information. A mother takes information from her neighborhood ...