"Peer Effects in Skills and Habits." Paper
Abstract: This paper estimates peer effects in skill development and habit acquisition within a linear-in-means framework. The identification of the causal effect of peer outcomes is often hindered by the presence of correlated effects, influences of peers' background characteristics and the simultaneity of behavior of interacting agents. This paper exploits the structure of interactions in a directed friendship network to identify peer effects using an instrumental variable strategy. It relies on the assumption that each individual has their own reference group of friends whose mean outcome and characteristics influence their own outcome. Then under the presence of intransitivity, the characteristics of an individual's indirect connections can be used as instruments to identify peer effects. Using Add Health data, the findings of this study suggest that there exist sizeable within-outcome peer effects on a student's academic performance, sociability, smoking intensity, alcohol consumption and delinquent behavior. A student's academic performance and delinquency are also impacted by the sociability of their friends. Furthermore, I investigate the possible mechanisms underlying the large peer spillover effects and find that both parental and school interventions can promote positive spillovers and mitigate negative spillovers.