Peer effects in pension decision-making: evidence from China's new rural pension scheme

In this article we study whether peer effects play an important role in pension related decisions in rural China. The implementation of a new rural pension scheme offers a unique setting for studying the peer effects in financial decision-making among low-income people. The data are from the China Household Finance Survey (CHFS). Our main results suggest that an individual's choice of participation decisions and contribution level are significantly affected by both the choices and characteristics of his/her peers while there is no evidence of significant peer effects in the participation intention. The behaviors of interrupting and starting to enroll are also influenced by their peers. The influence of peer effects is mediated by social norms and information transmission about the benefits, costs, and risks of choices. In monetary terms, the peer effect is estimated to have an equivalent effect with increasing the household income by 0.57 percent.