On the optimal allocation of students when peer effects are at work: tracking vs. mixing

The belief that both the behavior and outcomes of students are affected by their peers is important in shaping education policy. I analyze two polar education systems -tracking and mixing- and propose several criteria for their comparison. I find that tracking is the system that maximizes average human capital. Nevertheless, no single system is unanimously preferred by the entire population. In addition, I find that the gains of tracking, compared to mixing, are sensitive to changes in the level of dispersion in the pre-school achievement distribution of the population.