Homophily in Peer Groups
The focus of this paper is the endogenous formation of peer groups. In our model, agents choose peers before making contributions to public projects, and they differ in how much they value one project relative to another. Thus, the group's preference composition affects the type of contributions made. We characterize stable groups and find that they must be sufficiently homogeneous. We also provide conditions for some heterogeneity to persist as the group size grows large. In an application in which the projects entail information collection and sharing within the group, stability requires more similarity among extremists than among moderate individuals.
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making (D91), Social Choice, Clubs, Committees, Associations (D71), Information, Asymmetric and Private Information, Mechanism Design (D82), Search, Learning, Information and Knowledge, Communication, Belief, Unawareness (D83)
American Economic Journal: Microeconomics