Peer effects identified through social networks. Evidence from uruguayan schools.

This paper provides evidence on peer effects in standardized tests by exploiting a unique data set on social networks in Uruguayan primary schools. The identification method enables one to disentangle endogenous from contextual effects via instrumental variables that emerge naturally from the network structure. Correlated effects are controlled for via classroom fixed effects. I find significant endogenous effects in reading and math: a one-standard deviation increase in peers's scores increases own scores by about 40 percent of a standard deviation. Simulation exercises show that, when schools are stratified by socioeconomic status, peer effects may amplify educational inequalities.