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Peer Effects in Education: A Survey of the Theory and Evidence

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Abstract

We survey the theoretical and empirical literature on peer effects in education. Theoretical models of peer effects are first summarized. Models of educational provision regimes in which peer effects play a central role are then discussed. Next we discuss the identification issues in estimating peer effects and strategies used to resolve them. Last we survey the empirical evidence on and channels of peer effects in education.

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... Research has shown that parental educational and social class background are important factors that affect children's learning outcomes (e.g. Björklund and Salvanes 2011;, while peers appear to have less influence (for an overview, see and Epple and Romano 2011). It is challenging, however, to target educational inequalities between students with different social, ethnic or racial backgrounds with policy on an individual level (Jackson and Jonsson 2013), whereas the student composition of school classes can be manipulated more easily. ...
... It is challenging, however, to target educational inequalities between students with different social, ethnic or racial backgrounds with policy on an individual level (Jackson and Jonsson 2013), whereas the student composition of school classes can be manipulated more easily. Not least due to their policy relevance, there is a large body of research on compositional effects on learning outcomes (for an overview of peer effects, see Burke and Sass 2013;Downey and Condron 2016;Epple and Romano 2011;Sacerdote 2011). Yet, there are important research gaps concerning the relationship between school class composition and individual academic performance, two of which we address in our study. ...
Article
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The present study addresses the question to what extent language skills among students are influenced by the composition of the overall classroom context and the composition of friendship networks within school classes. Furthermore, we ask whether the effects differ between stratified school systems, with a more homogenous student body in school classes, and comprehensive school systems, with a more heterogeneous student body. Focusing only on classroom characteristics, we find positive effects of the socioeconomic and cognitive overall composition of the school class in Germany’s selective school system, but not in Sweden’s comprehensive system. In contrast, the ethnic composition does not matter significantly in any of the systems, while direct peer interactions, captured with social networks measures targeting friends in a school class, matter slightly more in Sweden’s comprehensive school system. Supplemental data for this article is available online at https://doi.org/10.1080/01425692.2020.1799754.
... There is significant and diverse literature on what drives student success in the classroom. Scholars have looked at such factors as the impact of different types of instructors (Miskolczi & M arton Rakovics 2018;Chingos 2016;Sil en and Uhlin 2008;Nye et al. 2004;Basow 1995), the importance of student characteristics such as socioeconomic background and parental history (Dell'Angelo 2014; Misty & Tissington 2011;Epple and Romano 2011;Ermisch and Francesconi 2001), and the influence of course dynamics such as class size and mode of delivery (Miskolczi & M arton Rakovics 2018;Tobin 2017;Bolsen et al. 2016;Krueger and Whitmore 2001). With respect to curriculum development, there is an extensive literature supporting universal design (UD), with its focus on differing student needs and learning styles (Rao et al. 2014; Tanners 2011; Roberts et al. 2011;Scott et al. 2003;Silver et al. 1998). ...
... Putting AL to the test: Hypotheses, methods, results, and implications Having significant background in working to improve student engagement and performance in the large-section Global Issues class, and drawing on the broader literature on student success, education technology, and adaptive learning discussed above (Miskolczi & M arton Rakovics 2018;Bailey et al. 2018;Dziuban et al. 2018;Dziuban et al. 2018;Dziuban et al. 2017;Johnson 2017;Tobin 2017;Tyton Partners 2017;Yarnall, Means, and Wetzel 2016;Bolsen et al. 2016;Chingos 2016;Rashid and Asghar 2016;Pugliese 2016;Yarnall, Means, and Wetzel 2016;Oxman and Wong 2014;Dell'Angelo 2014;Rao et al. 2014;Rao and Tanners 2011;Roberts et al. 2011;Misty & Tissington 2011;Epple and Romano 2011;Chen et al. 2010;Sil en and Uhlin 2008;Nye et al. 2004;Scott et al. 2003;Ermisch and Francesconi 2001;Krueger and Whitmore 2001;Silver et al. 1998;Basow 1995), we approached the project with some belief that the AL courseware could help improve student perception of course materials and student performance. We were more skeptical of a positive impact on DFW rates, particularly in the short term, despite some positive results reported in previous studies (see above). ...
... Peer effects have been a heated topic in labor economics for years (Epple and Romano, 2011;Sacerdote, 2011). The research is closely related to the question of how policy makers should organize classes according to students' abilities, genders and races to achieve efficiency and fairness. ...
... The results are almost the same. 20 Details about the fundamental challenges in identifying peer effect model can be found in Sacerdote (2011); Epple and Romano (2011). outcome y i can affect his or her peers' outcomes, which reflects back when his or her peers' outcomes can also affect student i's outcome. ...
Preprint
In this study, we investigate the peer effects of domestic migrant children and left-behind children on their classmates. Left-behind children are the children who are left in their hometown when their parents migrate. We exploit the large-scale random assignment of students into classes within schools in China to deal with the identification challenge due to the self-selection of students, which is rarely seen in other countries. Results show that an increase of ten percentage points in the proportion of left-behind peers and the proportion of migrant peers in the class results in a decrease of 0.12 and 0.06 standard deviations in a student's test score, respectively. However, the negative peer effects of left-behind peers are halved and the negative peer effects of migrant peers are totally erased in the second year. The reduction can be attributed to an improved class environment, such as students' relationships. Left-behind students' misbehavior due to the lack of parents' supervision may cause long-lasting damage and negative spillover. In addition, the indirect channel of family background of migrant and left-behind students explains only part of the peer effect. Relaxing the enrollment restriction of migrant students and encouraging migrant parents to take their children with them might reduce the overall negative spillovers.
... Peer training has been extensively investigated in the field of education (seeEpple andRomano, 2011, and Sacerdote, 2011, for surveys).13 Supporting our conjecture that solving nonograms can be taught in a lab setting, several studies have shown that Sudoku puzzles are teachable(Calsamiglia et al., 2013;Kimbrough et al., 2017). ...
... Peer training has been extensively investigated in the field of education (seeEpple andRomano, 2011, and Sacerdote, 2011, for surveys).13 Supporting our conjecture that solving nonograms can be taught in a lab setting, several studies have shown that Sudoku puzzles are teachable(Calsamiglia et al., 2013;Kimbrough et al., 2017). ...
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We present experiments exploring why high ability workers join teams with less able coworkers when there are no short-term financial benefits. We distinguish between two explanations: prosocial preferences and expected long-term financial gains from teaching future teammates. Participants perform a real-effort task and decide whether to work independently or join a two-person team. Treatments vary the payment scheme (piece rate or revenue sharing), whether teammates can communicate, and the role of teaching. High ability workers are more willing to join teams in the absence of revenue sharing and less willing to join teams when they cannot communicate. When communication is possible, the choice of high ability workers to join teams is driven by expected future financial gains from teaching rather than some variety of prosocial preferences. This result has important implications for the role of adverse selection in determining the productivity of teams. This paper was accepted by Yan Chen, decision analysis.
... 4 Bennett and Bergman (2018) provide a nice example of social multipliers in action using an attendance intervention. A good survey of the related theory can be found in Epple and Romano (2011). 5 See Carrell et al. (2013) for an example. ...
... Neymotin (2009) investigates the effect of immigration on different natives' outcomes in California and Texas, namely SAT scores and college application patterns. Using a 6 Epple andRomano (2011) or Brodaty (2010) provide a literature review of applied work estimating peer effects in the classroom. 7 Limited English students refers to students with limited English proficiency. ...
... Nevertheless, all these components of school effects are in fine impacting achievements and therefore of interest for students and families. Because peer effects are usually prevalent in education (for a survey see for instance Sacerdote [2011] or Epple and Romano [2011]), the school performance of one student is usually affected by the performances of his or her classmates -regardless of the teaching practices or school investment. Raudenbush and Willms [1995] emphasized that if these measures may not be appropriate for authorities to evaluate school practices, they may be valuable for parents when choosing a school for their children. ...
Technical Report
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This paper presents a new method that goes beyond the measurement of average value-added of schools by measuring whether schools mitigate or intensify grades dispersion among initially similar students. In practice, school value-added is estimated at different levels of final achievements’ distribution by quantile regressions with school specific fixed effects. This method is applied using exhaustive data of the 2015 French high-school diploma and controlling for initial achievements and socio-economic background. Results suggest that almost one-sixth of the high schools significantly reduce, or on the contrary increase, the dispersion in final grades which were expected given the initial characteristics of their intake.
... A large and growing literature finds that social interactions influence many economic outcomes, including crime, education, and employment (for recent reviews, see Blume et al., 2011;Epple and Romano, 2011;Munshi, 2011;Topa, 2011). While research has long-recognized the effect of location decisions on individual and aggregate economic outcomes, there is little evidence on the importance of social interactions in location decisions, and even less evidence on the types of individuals or economic conditions for which social interactions are most important. ...
Thesis
Chapter 1: “The Impact of College Education on Mortality: A Study of Marginal Treatment Effects.” With a newly constructed dataset that links the 2000 U.S. Census long-form to Social Security Administration records, I estimate the effect of college education on mortality. Using the proximity to college from birthplace as an instrument, I estimate the marginal treatment effect (MTE) of college education on 10-year mortality rate for adults aged 60-99 in the United States from 2000-2010. The OLS results show a strong association between college education and lower mortality. The MTE results show that individuals that have unobserved characteristics that make them least likely to attend college have the largest effects of education in reducing mortality. This suggests that the individuals who would benefit most from receiving college education in terms of health are those do not attend college. The positive effects on reducing mortality are solely concentrated among men. For women, I find no evidence of an effect of education on old-age mortality. Combined with evidence from the literature, these results provide suggestive evidence that income is not the mechanism through which education reduces mortality. Chapter 2: “Social Interactions and Location Decisions: Evidence from U.S. Mass Migration.” (with Bryan Stuart) This paper estimates the strength through which social interactions influenced location decisions during two large scale migrations in the United States during early to mid 1900s. We examine the Great Migration of African Americans out of the Southern United States and the Dust Bowl Migration of whites out of the Midwestern U.S. Using long-run data on migration patterns for individuals born 1916-1936, we estimate the effect of social interactions on influencing where individuals decided to migrate. We find that social interactions were very important for African Americans during the Great Migration in affecting location decisions. Our results suggest that 47-69 percent of blacks chose their destination city in the North because of influence from other people that were from their hometown. For whites, we estimate much smaller effects; only 14-24 percent of whites chose their destination city because of social interactions. Chapter 3: “The Effect of Social Migration on Crime: Evidence from the Great Migration.” (with Bryan Stuart) Using results from the second chapter of the dissertation, which shows that social interactions were influential in guiding migration patterns during the Great Migration, this paper estimates the effect these patterns had on crime in U.S. cities from 1960-2009. We document the large variations in the connectedness of migrants from the South that moved to different Northern cities. For example, some cities received almost one-third of their migrants from only one origin town in the South, where other comparable cities received no more than three percent of migrants from any one place. We find that, controlling for other economic characteristics, cities which received more connected migrants had lower crime rates from 1970-2000, which suggests an important role of social connectedness on crime during these periods. The results are largely driven by cities with a high population share of African Americans, and through crime increases among black juveniles. Cities that had more connected migrants had smaller increases in crime rates during the 1970s and 1980s.
... However, the presence of disruptive peers can undermine classroom learning environments and hurt academic achievement (Epple and Romano 2011;Sacerdote 2011). ...
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To evaluate the net effects of classroom disciplinary practices, policymakers and educators must understand not only their effects on disciplined students but also their effects on non-disciplined peers. In this study, we estimate the link between peer suspensions and non-suspended students' learning trajectories in a California school district where middle and high school students took up to 12 basic skills tests in mathematics and English Language Arts (ELA) over the course of the 2009-10, 2010-11, and 2011-12 school years. We find that Hispanic students, students eligible for free or reduced-price lunch, English language learners, students enrolled in special education, and low-achieving students are disproportionately exposed to classmate suspensions. Analyses with student and classroom fixed effects show that student achievement in mathematics increases when their classmates receive suspensions, particularly suspensions attributed to disruptive behavior. We find no association between classmate suspension and ELA achievement. Since these results come from schools in which suspensions are relatively rare events, they may not generalize to settings with draconian disciplinary cultures. Nonetheless, our findings imply that suspensions, when used appropriately, can improve the academic achievement of non-suspended students, particularly for students from vulnerable populations.
... Outside of health insurance, where there are very limited papers studying peer effects at scale, there are some notable papers with very strong identification of peer effects and their underlying mechanisms for smaller samples including, e.g., for (i) mortgage refinancing by teachers (Maturana and Nickerson (2018)) (ii) firm performance under executives (Shue (2013)) (iii) housing purchases (Bailey et al. (2018)) and (iv) education (Epple and Romano (2011)). Our analysis studies peer effects on multiple dimensions at scale for an entire country and links those peer effects to measures of choice quality and inequality. ...
Thesis
While citizens in rich countries have indisputably become healthier and richer on average, there is a general sense that this progress has not benefited everyone equally and that health and economic inequality has increased. This thesis contributes to the literature on the measurement and causes of such trends in inequalities by using newly available administrative data in the low countries Belgium and the Netherlands to document and analyze three separate dimensions of contemporary health and economic inequality. The first chapter analyzes the evolution of migrants' descendants' educational outcomes and incomes in the Netherlands, with a focus on second and third generations migrants from Morocco, Suriname and Turkey. While gaps between natives' and migrants' descendants remain large, gaps are generally smaller for later generations, and are overall decreasing. Moreover, using migrant-of-entry fixed effects, a positive effect of the length of stay of migrant families in the Netherlands on the test scores of migrants' children is established and continues after fifty years. I complement these findings with a discussion of migrants' mobility patterns and the role of intermarriage in economic integration. The second chapter concerns the choice quality of insurance contracts by individuals in the Netherlands. We study a specific attribute of the health insurance purchase decision all Dutch inhabitants make: the choice of the size of the deductible. We find that individual choice quality is strongly correlated with the education level and professional sector. Moreover, there is a strong correlation between the decision quality of an individual and those of his/her connections, as we find within-firm, location and family impacts on decision making. We document that such inequality in choice quality leads to substantial difierences in financial outcomes, and evaluate alternative policies. The third chapter analyzes the distributional pattern of mortality in Belgium during the first wave of the Covid-19 pandemic in 2020. Using population-wide administrative data, we find that there is a significant negative income gradient in excess mortality, with excess deaths in the bottom income decile more than twice as high as in the top income decile. However, compared to the inequality in mortality in normal times, the income gradient in all-cause mortality is only marginally steeper.
... Tanulmányuk bemutatja, hogy a magasabb színvonalú felsőoktatási intézményekben való továbbtanulás lehetősége miatt a hallgatók lakóhelyükről elvándorolnak, migrációjukat a felsőoktatási intézmények jobb régióközi elérhetősége is befolyásolja, illetve a férfiak mobilabbak, mint a nők. Leginkább az Egyesült Államokban figyelhető meg, hogy a diákok az egyetemek minősége szerint választanak maguknak iskolát (Epple-Romano [2011]). Ono [2001], valamint Lockley és Promnitz-Hayashi [2012] japán hallgatók mobilitását elemzik olyan modellt használva, mely a diákok társadalmi származásán és demográfiai jellemzőin (nem és életkor), valamint az egyetemek számán és minőségén alapul. ...
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Although Affirmative Action policies have been enforced in many countries, their consequences are highly understudied, especially in the context of developing economies. Section 12(1)(c) of the Right to Education (RTE) Act enforced in 2009 is the first attempt to introduce affirmative action in primary schools in India. The act requires all private schools to reserve at least twenty five percent seats for children from economically weaker sections. To understand the effect of the act on i) social integration and ii) academic outcomes, we asked 1500 children (grades one to three) from four schools to answer friendship surveys and short tests in Mathematics and English. The schools in our sample vary considerably in constitution and were intentionally chosen to understand the impact of the act in different school settings. The friendship surveys show strong homophily i.e. non-RTE students cite other non-RTE students as friends, while RTE students chose to be friends primarily with other RTE students. Trends in test scores reveal that students admitted under the RTE quota score significantly lower than non-RTE students. However, RTE students who have a higher share of non-RTE friends have better test scores, suggesting that affirmative action may have a positive influence on learning outcomes for RTE children. Further we note that commitment from the school authorities and systematic monitoring and evaluation of the implementation of the act will go a long way in bringing out some of the benefits that this act was designed to achieve. Our findings have important policy implications with respect to ensuring proper implementation of the Section12(1)(c) of the RTE act in schools across the country.
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Thesis
This dissertation discusses the relevance of the implementation of market mechanisms in the educational system. It shows that such mechanisms are unlikely to improve the matching between schools and students, since centralized mechanisms perform better. Then, it measures peers effects in French public junior high school, and shows that they quite large. In a third part, it looks to the compensation of teachers in France, and show that it is not based on merit or performance. Last, it analyses the impact of the openness to competition of the education, and shows that it is unlikely to produce improvement. Indeed, such openness would lead to an increased vertical differentiation across, giving them more market power. As a result, market mechanisms seem unable to improve students’ achievement.
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Peer effects have figured prominently in debates on school vouchers, desegregation, ability tracking, and antipoverty programs. Compelling evidence of their existence remains scarce for plaguing endogeneity issues such as selection bias and the reflection problem. This paper is among the first to firmly establish the link between peer performance and student achievement, using a unique data set from China. We find strong evidence that peer effects exist and operate in a positive and nonlinear manner; reducing the variation of peer performance increases achievement; and our semiparametric estimates clarify the trade-offs facing policymakers in exploiting positive peer effects to increase future achievement. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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We present a model in which compulsory school attendance laws, which typically require school attendance until a specified birthday, induce a relationship between years of schooling and age at school entry. Variation in school starting age created by children's dates of birth provides a natural experiment for estimating the effect of age at school entry. Because no large data set contains information on both age at school entry and educational attainment, we use an instrumental variables (IV) estimator with data derived from the 1960 and 1980 Censuses to estimate and test the age-at-entry/compulsory schooling model. In most IV applications, the two covariance matrices that form the estimator are constructed from the same sample. We use a method-of-moments framework to discuss IV estimators that combine moments from different data sets. In our application, quarter of birth dummies are the instrumental variables used to link the 1960 Census, from which age at school entry can be derived for one cohort of students, to the 1980 Census, which contains educational attainment for the same cohort of students. The results suggest that compulsory attendance laws constrain roughly 10% of students to stay in school.
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Education research is replete with studies of how various policies impact student achievement, yet little attention is paid to the forces driving variation in policy across schools. With the basic structure of education up for debate in the U.S., it is critical to understand how individual school policies will respond to systemic change. Using out of school suspension as the policy of interest, I model the discipline setting process and the impact discipline has on student outcomes in an equilibrium setting. Using the estimated model, I consider various structural changes in the education market aimed at closing the racial gap in suspension. I calculate the new discipline, behavior, and achievement equilibrium and discuss the tradeoffs policymakers face when attempting to close the discipline gap.
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The impact of peers on student outcomes has important policy implications for how students are organized into classes and the overall impact of education interventions. But it is difficult to accurately measure peer effects because of the nonrandom sorting of students and teachers into classrooms and the endogeneity of peers' achievement. In this study, an education production function (EPF) is specified that includes student and peer characteristics as regressors. This model is estimated using student-level data from New York City public schools for 1995–2000. The richness of these data allows six sources of bias that arise in the EPF model to be addressed, including the above-mentioned nonrandom classroom assignment and the endogeneity of peers' achievement. This results in credible evidence of (small) peer group effects. Instrumenting for the mean of peers' achievement significantly reduces the associated peer effect. Nonlinear peer group effects are evident in the form of a small positive impact associated with the homogeneity of peers' achievement. Generally, peer characteristics do not appear to affect individual performance. Also included in this analysis is an application of a new methodology developed by Graham (2007) that identifies peer group effects through their impact on the variance in classroom mean test scores. The approach is less susceptible to the six biases that plague the EPF approach. The evidence from this exercise indicates that peer group effects are present and corroborates the results from the EPF approach. © 2008 American Education Finance Association
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This paper addresses a central difficulty in the estimation of causal relationships between teacher characteristics and student achievement: the tendency for highly qualified teachers to teach in schools serving more advantaged students, and the tendency for parents to seek out teachers with better credentials within schools. These two processes tend to bias estimates of teacher effects upward. Using administrative data on North Carolina public schools, we employ several strategies for eliminating this bias: controlling for a rich set of student covariates, using school fixed effects, and restricting the analysis to schools that appear to assign students randomly to classrooms. In all our analyses, we find significant returns to teacher experience and licensure test scores. We also find that these returns are greater for students from advantaged families, a pattern that may help explain why nonrandom matching that benefits the affluent is allowed to persist in equilibrium.
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Obtaining consistent estimates of spillovers in an educational context is hampered by two issues: selection into peer groups and peer efiects emanating from unobservable characteristics. We develop an algorithm for estimating spillovers using panel data that addresses both of these problems. The key innovation is to allow the spillover to operate through the flxed efiects of a student's peers. The only data requirements are multiple outcomes per student and heterogeneity in the peer group over time. We flrst show that the non-linear least squares estimate of the spillover is consistent and asymptotically normal as N ! 1 with T flxed. We then provide an iterative estimation algorithm that is easy to implement and that converges to the non-linear least squares solution. Using University of Maryland transcript data, we flnd statistically signiflcant peer efiects on course grades, particularly in courses of a collaborative nature. We compare our method with traditional approaches to the estimation of peer efiects, and quantify separately the biases associated with selection and spillovers through peer unobservables.
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Empirical studies of peer effects rely on the assumption that peer spillovers can be measured through observables. However, in the education context, many theories of peer spillovers center around unobservables, such as ability, effort or motivation. I show that when peer effects arise from unobservables, the typical empirical specifica-tions will not measure peer effects accurately, which may help explain differences in the magnitude and even sign of peer effects estimates across studies. I further show that under reasonable assumptions these estimates cannot be applied to determine the effects of regrouping students, a central motivation of the literature.
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We use administrative data covering all public school students in the state of North Carolina to estimate the relationship between peer characteristics and student achievement. In models defining peer groups at the classroom level and employing school fixed effects, we find a significant positive relationship between peer ability, as measured by 3 rd grade standardized test scores, and 5 th grade achievement. We also find that greater dispersion in peer ability predicts higher math test scores. We estimate a significant positive impact of 5 th grade peer characteristics carrying forward to the 6 th , 7 th and 8 th grades. Concerns of endogenous selection into peer groups are very important in this study. While the use of school fixed effects does not substantially affect our peer characteristic coefficients, alternative specifications that exploit changes in school composition associated with the redrawing of attendance zone boundaries show no significant impact of changes in peer group composition on changes in achievement.
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This paper develops a model in which colleges seek to maximize the quality of the educational experience provided to their students. We deduce predictions about the hierarchy of schools that emerges in equilibrium, the allocation of students by income and ability among schools, and about the pricing policies that schools adopt. The empirical findings of this paper suggest that there is a hierarchy of school qualities which is characterized by substantial stratification by income and ability. The evidence on pricing by ability is supportive of positive peer effects in educational achievement from high ability at the college level. Copyright © 2003 John Wiley & Sons, Ltd.
Book
This book, by one of the world's leading experts on dynamic panel data, presents a modern review of some of the main topics in panel data econometrics. The author concentrates on linear models, and emphasizes the roles of heterogeneity and dynamics in panel data modelling. The book combines methods and applications, so will appeal to both the academic and practitioner markets. The book is divided in four parts. Part I concerns static models, and deals with the problem of unobserved heterogeneity and how the availability of panel data helps to solve it, error component models, and error in variables in panel data. Part II looks at time series models with error components. Its chapters deal with the problem of distinguishing between unobserved heterogeneity and individual dynamics in short panels, modelling strategies of time effects, moving average models, inference from covariance structures, the specification and estimation of autoregressive models with heterogeneous intercepts, and the impact of assumptions about initial conditions and heteroskedacity on estimation. Part III examines dynamics and predeterminedness. Its two chapters consider alternative approaches to estimation from small and large T perspectives, looking at models with both strictly exogenous and lagged dependent variables allowing for autocorrelation of unknown form, models in which the errors are mean independent of current and lagged values of certain conditioning variables but not with their future values. Together Parts II and III provide a synthesis, and unified perspective, of a vast literature that has had a significant impact on recent econometric practice. Part IV reviews the main results in the theory of generalized method of moments estimation and optimal instrumental variables. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/0199245290/toc.html
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Using a new administrative panel data set from the University of Maryland, this paper explores conventional peer effects and the effects of socially proximate peers at a large public university where some students are randomly assigned to housing. Results show that there is little evidence of robust residential peer effects on undergraduate performance. The impact of socially proximate peers' characteristics on student achievement is then examined using an instrumental variables technique. Results indicate that social “friends” do not impact performance more than randomized peers. The paper casts doubt on the notion that social tie formation is the route to peer effects, and urges caution in the continued pursuit of peer effects in education without substantial empirical or theoretical innovation.
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To study the effects of ability grouping on school competition, we develop a theoretical and computational model of tracking in public and private schools. We examine tracking’s consequences for the allocation of students of differing abilities and income within and between public and private schools. Private schools tend to attract the most able and wealthiest students, and rarely track in equilibrium. Public sector schools can maximize attendance by tracking students. Public schools retain a greater proportion of higher-ability students by tracking, but lose more wealthy, lower-ability students to the private sector. Consequently, socioeconomic status is a predictor of track assignment in public schools. For the entire population, public-sector tracking has small aggregate effects on achievement and welfare, but results in significant redistribution from lower- to higher-ability students.
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We propose a simple short-cut to the problem of estimating endogenous peer effects from observed behavior: asking students about peers' ability and their own effort. Our survey evidence indicates that students believe in own-peer complementarities in educational production.
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In 1994 the state of Michigan implemented one of the most comprehensive school finance reforms undertaken to date in any of the states. Understanding the effects of the reform is thus of value in informing other potential reform initiatives. In addition, the reform and associated changes in the economic environment provide an opportunity to assess whether a simple general equilibrium model can be of value in framing the study of such reform initiatives. In this paper, we present and use such a model to derive predictions about the effects of the reform on housing prices and neighborhood demographic compositions. Broadly, our analysis implies that the effects of the reform and changes in the economic environment are likely to have been reflected primarily in housing prices and only modestly on neighborhood demographics. We find that evidence for the Detroit metropolitan area from the decade encompassing the reform is largely consistent with the predictions of the model.
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When there are peer effects in education, private schools have an incentive to vary tuition to attract relatively able students. Epple and Romano [American Economic Review 88(1) (1998) 33] develop a general equilibrium model characterizing equilibrium pricing and student selection into schools when peer effects are present. The model predicts that competition will lead private schools to give tuition discounts to more able students, and that this will give rise to an equilibrium exhibiting stratification by income and ability between the public and private sectors and to a hierarchy of schools within the private sector. The model also yields a variety of comparative-static predictions. The predictions of the model are tested in this paper using a unique data set assembled by Figlio and Stone [Research in Labor Economics (1999) 115]. Tests of equilibrium predictions of the model reveal that: The propensity to attend private school increases with both income and ability, and, among private schools, the propensity to attend the highest-tuition schools rises with both income and ability. Within private schools, tuition declines with student ability, with a substantial number of even high-income households paying little or no tuition. The correlation between income and ability is greater in public than private schools. Tests of comparative static predictions of the model reveal that: Both income and ability become stronger predictors of private school attendance as public school expenditure falls. Income becomes increasingly important in determining placement in the private school hierarchy as public school expenditure falls. Discounts to ability in the lowest-quality private school decline as public school expenditure rises while discounts to ability in the highest-quality private school are little affected by changes in public school expenditure. Expenditure in private schools rises as expenditure in public schools increases. These empirical results are consistent with the predictions of the theoretical model.
Article
This paper develops a differentiated products model of school competition that distinguishes among different dimensions that matter in the skill acquisition process. The model predicts that when identical schools compete for students, specialization may arise as a competition strategy. This serves rich students' education goals well. Poorer students, however, may attend schools with specializations that do not cater to their relative strengths. By doing so, these poorer students complement the weaknesses of the richer students through peer effects and receive financial aid in return. The empirical analysis provides strong support for the model's predictions about within-school implications of specialization.
Article
This paper provides a set of results on the econometric identifiability of binary choice models with social interactions. Our analysis moves beyond parametric identification results that have been obtained in the literature to consider the identifiability of model parameters when the distribution of random payoff terms is unknown. Further, we consider how identification is affected by the presence of unobservable payoff terms of various types as well as identification in the presence of certain forms of endogenous group membership. Our results suggest that at least partial identification may be achieved under assumptions that in certain contexts may be plausible.
Article
In 1981, Chile introduced nationwide school choice by providing vouchers to any student wishing to attend private school. As a result, more than 1000 private schools entered the market, and the private enrollment rate increased by 20 percentage points, with greater impacts in larger, more urban, and wealthier communities. We use this differential impact to measure the effects of unrestricted choice on educational outcomes. Using panel data for about 150 municipalities, we find no evidence that choice improved average educational outcomes as measured by test scores, repetition rates, and years of schooling. However, we find evidence that the voucher program led to increased sorting, as the “best” public school students left for the private sector.
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Understanding how heterogeneity in peer group composition affects academic attainment has important implications for how schools organize students in group settings. The random assignment of cadets to companies at West Point affords an opportunity to investigate this issue empirically. Estimates of the impact of peer group heterogeneity in math SAT scores on freshmen-year academic performance reveals that more heterogeneous peer groups have positive effects on individual grades. High-ability peers account for most of the positive effect, while low-ability peers have no measureable effect. (JEL I23, J24, M54)
Article
This paper evaluates a pilot program run by a company called OPOWER, previously known as Positive Energy, to mail home energy reports to residential utility consumers. The reports compare a household’s energy use to that of its neighbors and provide energy conservation tips. Using data from randomized natural field experiment at 80,000 treatment and control households in Minnesota, I estimate that the monthly program reduces energy consumption by 1.9 to 2.0 percent relative to baseline. In a treatment arm receiving reports each quarter, the effects decay in the months between letters and again increase upon receipt of the next letter. This suggests either that the energy conservation information is not useful across seasons or, perhaps more interestingly, that consumers’ motivation or attention is malleable and non-durable. I show that “profiling,” or using a statistical decision rule to target the program at households whose observable characteristics suggest larger treatment effects, could substantially improve cost effectiveness in future programs. The effects of this program provide additional evidence that non-price “nudges” can substantially affect consumer behavior.
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In this paper we show that, when endogenous fertility is considered via Cobb-Douglas preferences, public debt plays a clear-cut role on dynamic inefficiency (DI) of an OLG economy: in fact, for correcting the DI problem, debt must be increased (decreased) when the economy is overaccumulating (underaccumulating). The occurrence of overaccumulation, and, thus, the necessity of a positive level of debt, is favoured by a small capital income share, on the technological side, and a sufficiently high degree of patience and a low preference for children on preferences grounds. As for the optimal level of debt, our analysis shows that a high level ofdebt is more likely to be optimal for countries with a relatively low share of capital, with high costs for rearing children, with high individuals' degree of patience; as for individuals preference for children, as expected, the preference for a numerous family reduces the risk of overaccumulation and, thus, the optimal level of national debt. Moreover, interestingly, although in our model the occurrence of dynamic inefficiency (DI) does not depend on the level of the child rearing cost, such cost magnifies the degree of inefficiency and, therefore, a higher public debt is required for correcting DI. Finally, it is argued that such findings can provide useful criteria for assessing the optimality of public debt-cutting policies undertaken by several Europen countries.
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Credit default swaps (CDS) which constitute up to 98% of credit derivatives have had a unique, endemic and pernicious role to play in the current financial crisis. However, there are few in depth empirical studies of the financial network interconnections among banks and between banks and nonbanks involved as CDS protection buyers and protection sellers. The ongoing problems related to technical insolvency of US commercial banks is not just confined to the so called legacy/toxic RMBS assets on balance sheets but also because of their credit risk exposures from SPVs (Special Purpose Vehicles) and the CDS markets. The dominance of a few big players in the chains of insurance and reinsurance for CDS credit risk mitigation for banks’ assets has led to the idea of “too interconnected to fail” resulting, as in the case of AIG, of having to maintain the fiction of non-failure in order to avert a credit event that can bring down the CDS pyramid and the financial system. This paper also includes a brief discussion of the complex system Agent-based Computational Economics (ACE) approach to financial network modeling for systemic risk assessment. Quantitative analysis is confined to the empirical reconstruction of the US CDS network based on the FDIC Q4 2008 data in order to conduct a series of stress tests that investigate the consequences of the fact that top 5 US banks account for 92% of the US bank activity in the $34 tn global gross notional value of CDS for Q4 2008 (see, BIS and DTCC). The May-Wigner stability condition for networks is considered for the hub like dominance of a few financial entities in the US CDS structures to understand the lack of robustness. We provide a Systemic Risk Ratio and an implementation of concentration risk in CDS settlement for major US banks in terms of the loss of aggregate core capital. We also compare our stress test results with those provided by SCAP (Supervisory Capital Assessment Program). Finally, in the context of the Basel
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In a range of settings, private firms manage peer effects by sorting agents into different groups, be they schools, neighbourhoods or teams. This paper considers such a firm, which controls group entry by setting a series of anonymous prices. We show that private provision systematically leads to two distortions relative to the efficient solution: first, agents are segregated too finely; second, too many agents are excluded from all groups. We demonstrate that these distortions are a consequence of anonymous pricing and do not depend upon the nature of the peer effects. This general approach also allows us to assess the way the `returns to scale' of peer technology and the cost of group formation affect the optimal group structure.
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Public-service output depends on input expenditures, on own personal characteristics, and on the characteristics of the other residents in the community (the peer group effect). In a community model with public expenditures set by voting, with migration between communities, and with land price differentials (capitalization), it is shown that communities may become heterogeneous in composition and (second-best) inefficient. This equilibrium occurs when the peer group effect is neither "too strong" nor "too weak." The inefficiency arises because an externality is created by migration. The land price differential does not play the part of the "price" of the better peer group, but of a transfer payment. Copyright 1990 by University of Chicago Press.
Article
This paper develops a framework for estimating household preferences for school and neighborhood attributes in the presence of sorting. It embeds a boundary discontinuity design in a heterogeneous residential choice model, addressing the endogeneity of school and neighborhood characteristics. The model is estimated using restricted-access Census data from a large metropolitan area, yielding a number of new results. First, households are willing to pay less than 1 percent more in house prices—substantially lower than previous estimates—when the average performance of the local school increases by 5 percent. Second, much of the apparent willingness to pay for more educated and wealthier neighbors is explained by the correlation of these sociodemographic measures with unobserved neighborhood quality. Third, neighborhood race is not capitalized directly into housing prices; instead, the negative correlation of neighborhood percent black and housing prices is due entirely to the fact that blacks live in unobservably lower-quality neighborhoods. Finally, there is considerable heterogeneity in preferences for schools and neighbors, with households preferring to self-segregate on the basis of both race and education.
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Research over the past several years has led to development of models characterizing equilibrium in a system of local jurisdictions. An important insight from these models is that plausible single-crossing assumptions about preferences generate strong predictions about the equilibrium distribution of households across communities. To date predictions have not been subjected to formal empirical tests. The purpose of this paper is to provide an integrated approach for testing predictions from this class of models. We first test conditions for locational equilibrium implied by these models. In particular about the distribution of households by income across communities. We then test the models predictions about the relationships among locational equilibrium conditions and housing prices. By drawing inferences from a structural general equilibrium model approach of this paper offers a unified treatment of theory and empirical testing.
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Many services provide outputs that depend partially on the customers as inputs; the presence of other customers often contributes to the output experienced by each purchaser. Higher education is the premier example; others are legion. The authors provide a simple model that addresses the questions of competitive pricing and allocative efficiency for these types of services. Prices that charge customers for what they get on net (output minus input) from the firm both are competitive and support efficient allocations; these prices internalize the apparent external effects of customers on each other. Few examples of such prices exist in the real world. Copyright 1995 by University of Chicago Press.
Article
The random assignment of cadets to social groups at West Point provides a rare opportunity to highlight potentially misleading estimates of social group effects found in many studies. Estimates of contemporaneous group effects in human capital production are typically positive and significant; however, evidence in this study suggests that occurrences common to a group may account for much of this correlation. Models that address these biases provide little evidence of group effects in academic performance, although there is evidence of group influences in choice outcomes such as the selection of academic major and the decision to remain in the Army. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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I use data from Williams College to implement a quasi-experimental empirical strategy aimed at measuring peer effects in academic outcomes. In particular, I use data on individual students' grades, their SAT scores, and the SAT scores of their roommates. I argue that first-year roommates are assigned randomly with respect to academic ability. This allows me to measure differences in grades of high-, medium-, or low-SAT students living with high-, medium-, or low-SAT roommates. With random assignment these estimates would provide compelling estimates of the effect of roommates' academic characteristics on an individual's grades. I also consider the effect of peers at somewhat more aggregated levels. In particular, I consider the effects associated with different academic environments in clusters of rooms that define distinct social units. The results suggest that peer effects are almost always linked more strongly with verbal SAT scores than with math SAT scores. Students in the middle of the SAT distribution may have somewhat worse grades if they share a room with a student who is in the bottom 15% of the verbal SAT distribution. The effects are not large, but are statistically significant in many models. Copyright (c) 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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This paper analyzes a randomized experiment to shed light on the role of information and social interactions in employees' decisions to enroll in a Tax Deferred Account (TDA) retirement plan within a large university. The experiment encouraged a random sample of employees in a subset of departments to attend a benefits information fair organized by the university, by promising a monetary reward for attendance. The experiment multiplied by more than five the attendance rate of these treated individuals (relative to controls), and tripled that of untreated individuals within departments where some individuals were treated. TDA enrollment five and eleven months after the fair was significantly higher in departments where some individuals were treated than in departments where nobody was treated. However, the effect on TDA enrollment is almost as large for individuals in treated departments who did not receive the encouragement as for those who did. We provide three interpretations-differential treatment effects, social network effects, and motivational reward effects-to account for these results. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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Classroom education has public good aspects. The technology is such that when one student disrupts the class, learning is reduced for all other students. A disruption model of educational production is presented. It is shown that optimal class size is larger for better-behaved students, which helps explain why it is difficult to find class size effects in the data. Additionally, the role of discipline is analyzed and applied to differences in performance of Catholic and public schools. An empirical framework is discussed where the importance of sorting students, teacher quality, and other factors can be assessed. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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This paper uses a unique data set to measure peer effects among college roommates. Freshman year roommates and dormmates are randomly assigned at Dartmouth College. I find that peers have an impact on grade point average and on decisions to join social groups such as fraternities. Residential peer effects are markedly absent in other major life decisions such as choice of college major. Peer effects in GPA occur at the individual room level, whereas peer effects in fraternity membership occur both at the room level and the entire dorm level. Overall, the data provide strong evidence for the existence of peer effects in student outcomes. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
Article
This paper proposes a production function describing processes subject to mistakes in any of several tasks. It shows that high-skill workers—those who make few mistakes—will be matched together in equilibrium, and that wages and output will rise steeply in skill. The model is consistent with large income differences between countries, the predominance of small firms in poor countries, and the positive correlation between the wages of workers in different occupations within enterprises. Imperfect observability of skill leads to imperfect matching and thus to spillovers, strategic complementarity, and multiple equilibria in education.
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Non-random assignment of students to teachers can bias value added estimates of teachers' causal effects. Rothstein (2008a, b) shows that typical value added models indicate large counter-factual effects of 5th grade teachers on students' 4th grade learning, indicating that classroom assignments are far from random. This paper quantifies the resulting biases in estimates of 5th grade teachers' causal effects from several value added models, under varying assumptions about the assignment process. If assignments are assumed to depend only on observables, the most commonly used specifications are subject to important bias but other feasible specifications are nearly free of bias. I also consider the case where assignments depend on unobserved variables. I use the across-classroom variance of observables to calibrate several models of the sorting process. Results indicate that even the best feasible value added models may be substantially biased, with the magnitude of the bias depending on the amount of information available for use in classroom assignments.
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With the growing recognition of the role played by geography in all sorts of economic problems, there is strong interest in measuring the size and scope of local spillovers (i.e., simple anonymous agglomeration or congestion effects, or more complicated interactions between individuals or firms of specific types). It is well-understood, however, that such spillovers cannot be distinguished from unobservable local attributes using just the observed location decisions of individuals or firms. We propose an empirical strategy for recovering estimates of spillovers in the presence of unobserved local attributes for a broadly applicable class of equilibrium sorting models. This approach relies on an instrumental variables strategy derived from the internal logic of the sorting model itself. We show practically how the strategy is implemented, provide intuition for our instrumental variables, and discuss the role of effective choice-set variation in identifying the model, and carry-out a series of Monte Carlo experiments to demonstrate the instruments' performance in small samples.