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| The Influence of the Peer Effect on Participation in China's New Rural Pension Scheme |
| ZHANG Chuanchuan, ZHU Hanyu
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School of Economics, Zhejiang University;
National School of Development, Peking University |
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Abstract China has developed one of the largest social security systems in the world. However, the proportion of the eligible population that participate in voluntary social programs is far below 100%, which limits the cost-sharing and welfare-protection functions of these programs.
Low rates of participation in voluntary social programs are not a China-specific phenomenon, as they are seen in many other countries (Currie, 2006; Matsaganis et al., 2008). Based on a thorough literature review, Currie (2006) concludes that information friction, stigma costs and transaction costs are the key factors that determine individuals' participation in such programs. However, as acknowledged by Currie (2006), rates of participation in these programs are usually well below 50%, and thus are not wholly attributable to these three factors. Alsan and Yang (2018) and Zhang (2019) show that migration policy and cultural norms, respectively, also affect participation in voluntary social programs. However, these factors only explain the low participation in voluntary social programs with specific policy or cultural backgrounds and are not a general explanation for the low participation in such programs worldwide.
Thus, this paper investigates the role of the peer effect on participation in voluntary social programs, as the peer effect plays an important role in individual decision-making and is an important factor in the uptake of social health insurance (Duflo and Saez, 2002; Liu et al., 2014). We use data from China Family Panel Studies to estimate whether the participation rate of people's neighbors (within the same village) affects people's participation decisions by examining participation in China's New Rural Pension Scheme (NRPS). Our conventional ordinary least squares estimate (OLS) shows that a 1% increase in people's neighbors' participation in the NRPS increases the likelihood of people's own participation by 0.76%, which is significant. We follow Case and Katz (1991) and Duflo and Saez (2002) by using an instrumental variable (IV) approach to detect causal inference. Specifically, we instrument neighbors' participation rates using their average age, which is known to be an important predictor of uptake of social pensions. That is, people's neighbors' age, as demonstrated by Duflo and Saez (2002), can be treated as exogenous when controlling for people's own age. The IV estimate is consistent with the conventional OLS estimate, as it shows that a 1% increase in people's neighbors' participation in the NRPS increases the likelihood of people's own participation by 0.42%, which is significant.
We then explore two mechanisms that may underlie this peer effect: an information transmission-based mechanism and a social norm-based mechanism. To determine if an information transmission-based mechanism exists, we test whether the peer effect decreases as the duration of the NRPS increases. Our OLS and IV estimation results suggest that such a decrease occurs, which supports the existence of an information transmission-based mechanism. We also find that the peer effect is larger if people primarily obtain information from their neighbors, rather than from media such as television and the internet. To determine whether a social norm-based mechanism exists, we measure local clan culture using common surnames and test whether the peer effect is larger in villages containing clans than in villages that do not contain clans. We find that a larger peer effect exists in villages with a stronger clan culture, and as clans are groups with strong cohesion and unified norms, these results support the existence of a social norm-based mechanism.
We also explore whether heterogeneous effects exist by separating the sample according to sex and educational attainment. We find that men have larger effects on their peers than women and therefore probably lead participation in voluntary social programs.
In summary, our findings suggest that the peer effect has a strong influence on people's participation in voluntary social programs, and that the peer effect is driven by information transmission-and social norm-based mechanisms. In addition, we find that the peer effect is asymmetrical: some groups have larger effects on other people's participation decisions than other groups. Our study contributes to the growing literature on the role of the peer effect in individual decision-making, and to the literature on the determinants of participation in voluntary social programs.
The policy implications of our findings are clear. First, enforcing policy advocacy and increasing policy publicity can effectively promote voluntary participation in social programs. Second, using policy interventions to increase the rate of participation of leaders in voluntary social programs effectively increases the overall rate of participation in such programs.
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Received: 21 July 2020
Published: 02 October 2021
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