Peer effects in innovation adoption decisions have been extensively studied. However, the underlying mechanisms of peer effects are generally not explicitly accounted for. Gaps in this knowledge could lead to misestimation of peer effects and inefficient interventions. This study examined the role of two mechanisms—sharing experiences (namely, experience effect) and externalities—in the adoption of an agricultural innovation. By referring to the diffusion process of a new crop in Chinese villages, we developed a simulation model that incorporated experience effect and externality effect on a multiplex network. The model allowed us to estimate the influence of each specific effect and to investigate the interplay of the positive and negative directions of the effects. The main results of simulation experiments were the following: (1) a negative externality effect in the system caused the diffusion of innovation to vary around a middle-level rate, which resulted in a fluctuating diffusion curve rather than a commonly found S-shaped one; (2) in the case of full diffusion, experience effect significantly shaped the diffusion process at the early stage, while externality effect mattered more at the late stage; and (3) network properties (i.e. connectivity, transitivity, and network distance) imposed indirect influence on diffusion through specific peer effects. Overall, our study illustrated the need to understand specific causal mechanisms when studying peer effects. Simulation methods such as agent-based modelling provide an effective approach to facilitate such understanding.
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