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From Natural Variation to Optimal Policy? The Lucas Critique Meets Peer Effects

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  • Scott E. Carrell
  • Bruce I. Sacerdote
  • James E. West

Abstract

We 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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File URL: http://www.nber.org/papers/w16865.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16865.

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Date of creation: Mar 2011
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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)
Handle: RePEc:nbr:nberwo:16865

Note: CH ED LS PE
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  1. Scott E. Carrell & James E. West, 2010. "Does Professor Quality Matter? Evidence from Random Assignment of Students to Professors," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 118(3), pages 409-432, 06.
  2. Scott E. Carrell & Richard L. Fullerton & James E. West, 2009. "Does Your Cohort Matter? Measuring Peer Effects in College Achievement," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 27(3), pages 439-464, 07.
  3. Foster, Gigi, 2006. "It's not your peers, and it's not your friends: Some progress toward understanding the educational peer effect mechanism," Journal of Public Economics, Elsevier, Elsevier, vol. 90(8-9), pages 1455-1475, September.
  4. Stinebrickner, Ralph & Stinebrickner, Todd R., 2006. "What can be learned about peer effects using college roommates? Evidence from new survey data and students from disadvantaged backgrounds," Journal of Public Economics, Elsevier, Elsevier, vol. 90(8-9), pages 1435-1454, September.
  5. Zimmerman, David J., 1999. "Peer Effects in Academic Outcomes: Evidence From a Natural Experiment," Williams Project on the Economics of Higher Education, Department of Economics, Williams College DP-52, Department of Economics, Williams College.
  6. Scott E. Carrell & Frederick V. Malmstrom & James E. West, 2008. "Peer Effects in Academic Cheating," Journal of Human Resources, University of Wisconsin Press, vol. 43(1).
  7. Bhattacharya, Debopam, 2009. "Inferring Optimal Peer Assignment From Experimental Data," Journal of the American Statistical Association, American Statistical Association, American Statistical Association, vol. 104(486), pages 486-500.
  8. Bryan S. Graham & Guido W. Imbens & Geert Ridder, 2009. "Complementarity and Aggregate Implications of Assortative Matching: A Nonparametric Analysis," NBER Working Papers 14860, National Bureau of Economic Research, Inc.
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