ESTIMATING THE IMPACT OF PEER GROUP EFFECTS ON SOCIOECONOMIC OUTCOMES- DOES THE DISTRIBUTION OF PEER GROUP CHARACTERISTICS MATTER

For some socioeconomic outcomes of interest to government policy-maker s, the influence of ''peer groups'' may be important. For example, stu dents' performance in school may be affected by characteristics of the ir classmates. If peer group effects exist, governments may be able to manipulate them to better achieve policy objectives. An example of th is is the choice between ''mixing'' and ''streaming'' students of diff erent ''abilities'' in public schools. Several recent studies have exa mined the influence of peer group effects. This paper argues that past attempts to estimate their impact may have used insufficiently flexib le techniques. In particular, they have emphasized the mean of peer ch aracteristics without taking into account their overall distribution. The paper shows how estimation can he done that takes the shape of the distribution into account, and how failure to do so can yield serious ly misleading results. Copyright (C) 1997 Elsevier Science Ltd