The perils of peer effects

Individual outcomes are highly correlated with group average outcomes, a fact often interpreted as a causal peer effect. Without covariates, however, outcome-on-outcome peer effects are vacuous, either unity or, if the average is defined as a leave-out mean, determined by a generic intraclass correl...

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Bibliographic Details
Published in:Labour economics Vol. 30; pp. 98 - 108
Main Author: Angrist, Joshua D.
Format: Journal Article
Language:English
Published: Amsterdam Elsevier B.V 01.10.2014
Elsevier Science Ltd
Subjects:
Causality
Correlation analysis
Econometrics
Estimating techniques
Estimation bias
Instrumental variables
Measurement errors
Social returns
Studies
C31
C36
I21
Social returns
Instrumental variables
C18
Causality
31
ISSN:0927-5371, 1879-1034
Online Access:Get full text
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Summary:Individual outcomes are highly correlated with group average outcomes, a fact often interpreted as a causal peer effect. Without covariates, however, outcome-on-outcome peer effects are vacuous, either unity or, if the average is defined as a leave-out mean, determined by a generic intraclass correlation coefficient. When pre-determined peer characteristics are introduced as covariates in a model linking individual outcomes with group averages, the question of whether peer effects or social spillovers exist is econometrically identical to that of whether a 2SLS estimator using group dummies to instrument individual characteristics differs from OLS estimates of the effect of these characteristics. The interpretation of results from models that rely solely on chance variation in peer groups is therefore complicated by bias from weak instruments. With systematic variation in group composition, the weak IV issue falls away, but the resulting 2SLS estimates can be expected to exceed the corresponding OLS estimates as a result of measurement error and for other reasons unrelated to social effects. Research designs that manipulate peer characteristics in a manner unrelated to individual characteristics provide the most compelling evidence on the nature of social spillovers. As an empirical matter, designs of this sort have mostly uncovered little in the way of socially significant causal effects.
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ISSN:0927-5371
1879-1034
DOI:10.1016/j.labeco.2014.05.008