Peer Effects in the Demand for Housing Quality

Using detailed data on friendship networks within neighborhoods, we investigate the importance of social interactions in one's own residential neighborhood in the demand for housing quality. We find evidence consistent with the presence of peer effects, especially for households living in urban areas. Our findings are in line with the prediction of a model where conformity preferences are the key element underlying economic outcomes that involve interactions with peers. Key Words: Social Networks; Linear-In-Means Model; Spatial Autoregression Model; Social Norms JEL No. A14, C21, D85, R21, Z13