From Natural Variation to Optimal Policy? The Lucas Critique Meets Peer Effects
AbstractWe take cohorts of entering freshmen at the United States Air Force Academy and assign half to peer groups with the goal of maximizing the academic performance of the lowest ability students. Our assignment algorithm uses peer effects estimates from the observational data. We find a negative and significant treatment effect for the students we intended to help. We show that within our “optimal” peer groups, students self-selected into bifurcated sub-groups with social dynamics entirely different from those in the observational data. Our results suggest that using reduced-form estimates to make out-of-sample policy predictions can lead to unanticipated outcomes.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16865.
Date of creation: Mar 2011
Date of revision:
Publication status: published as “ From Natural Variation to Optimal Policy? The Importance of Endogenous Peer Group Formation ,” Econometrica , 81(3): 855 - 882 , 2013 . (with B. Sacerdote and J. West)
Note: CH ED LS PE
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- I2 - Health, Education, and Welfare - - Education
- J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
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