Peer Effects and Human Capital Accumulation: the Externalities of ADD

Recent work shows that peers affect student achievement, but the mechanisms are not well understood. I show that peer behavior is an important mechanism, perhaps more so than ability, by exploiting exogenous timing in diagnosis/treatment of ADD among peers that improves peer behavior while holding peer achievement constant. Improvements in peer behavior increase student achievement. Moreover, resources mitigate the negative effects of peer behavior. These findings imply that the optimal response in the presence of peer effects is not necessarily to reorganize classrooms. Rather, existing institutions can modify peer effects by improving behavior and/or mitigating the impact of poor behavior.