Redistributing Peer Effects (joint with Ezra Oberfield)
Abst ract:
We study how a planner should assign agents to clubs---schools, firms, neighborhoods---whose quality depends on the composition of their m embers, when agents privately invest in becoming qualified. Investments are risky, and both the planner and the agent observe only noisy signals of qu alification. When forming clubs, the planner balances three objectives: rew arding strong signals to sustain investment, insuring agents against unsucc essful investments, and redistributing toward those who face higher cost of investment. The optimal assignment takes a simple shape. Agents with weak signals are grouped into low quality clubs that pool a wide range of poster iors, while those with strong signals are fully separated into homogeneous clubs with higher quality. Higher-ability agents receive more dispersed pla cements across clubs and steeper consumption schedules in the signal. A sin gle type-specific subsidy, linear in the quality of the club one joins, imp lements the optimum---with direct implications for the design of college-ai d formulas and related redistributive policies in settings with peer effect s. We next study an environment with two observably distinct populations, o ne for which investment costs tend to be higher. For a given signal, the pl anner assigns peers of higher qualification to members of the disadvantaged population.
DTSTAMP:20260620T131858Z DTSTART:20260616T130000Z DTEND:20260616T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR