This article was completed under a Cooperative Research and Development Agreement with the U.S. Air Force Academy. This research was partially funded by the National Academy of Education, the National Science Foundation, and Spencer Foundation. Thanks to D. Staiger, R. Fullerton, R. Schreiner, B. Bremer, K. Silz-Carson, and K. Calahan.
From Natural Variation to Optimal Policy? The Importance of Endogenous Peer Group Formation
Article first published online: 16 MAY 2013
© 2013 The Econometric Society
Volume 81, Issue 3, pages 855–882, May 2013
How to Cite
Carrell, S. E., Sacerdote, B. I. and West, J. E. (2013), From Natural Variation to Optimal Policy? The Importance of Endogenous Peer Group Formation. Econometrica, 81: 855–882. doi: 10.3982/ECTA10168
- Issue published online: 16 MAY 2013
- Article first published online: 16 MAY 2013
- Manuscript received July, 2011; final revision received December, 2012.
- Peer effects;
- social network formation;
We take cohorts of entering freshmen at the United States Air Force Academy and assign half to peer groups designed to maximize the academic performance of the lowest ability students. Our assignment algorithm uses nonlinear peer effects estimates from the historical pre-treatment data, in which students were randomly assigned to peer groups. We find a negative and significant treatment effect for the students we intended to help. We provide evidence that within our “optimally” designed peer groups, students avoided the peers with whom we intended them to interact and instead formed more homogeneous subgroups. These results illustrate how policies that manipulate peer groups for a desired social outcome can be confounded by changes in the endogenous patterns of social interactions within the group.