We examine a largely unexplored source of downward bias in peer effect estimation, namely, exclusion bias. We derive … formulas for the magnitude of the bias in tests of random peer assignment, and for the combined reflection and exclusion bias … consistent inference on peer effects without instruments. The method corrects for the presence of reflection and exclusion bias …

effect having an opposite sign from the true effect. We present an expression for the asymptotic bias of both OLS and IV … estimators and discuss the conditions under which sign reversal may occur. We provide a method for eliminating this bias when …