Bad Apples, Goody Two Shoes and Average Joes: The Role of Peer Group Definitions in Estimation of Peer Effects

The potential influence of peers and social networks on individual outcomes is important to a variety of educational policy debates including school vouchers, special education, middle school grade configurations and tracking. Researchers usually address the identification problems associated with credibly estimating peer effects in these settings but often do not account for ad-hoc definitions of peer-groups. In this paper, we use extensive information on peer groups to demonstrate that accurate definitions of the peer network seriously impact estimation of peer effects. We estimate the effect of peers’ smoking, drinking, sexual behavior and educational achievement on a teen’s propensity to engage in like-minded behavior and address the major identification problems that plague estimation of these effects.