The Role of Social Networks and Peer Effects in Education Transmission

We propose a dynastic model in which individuals are born in an educated or uneducated environment that they inherit from their parents. We study the role of social networks on the correlation in the parent-child educational status independent of any parent-child interaction. We show that the network reduces the intergenerational correlation, promotes social mobility and increases the average education level in the population. We also show that a planner that encourages social mobility also reduces social welfare, hence facing a tradeoff between these two objectives. When individuals choose the optimal level of social mobility, those born in an uneducated environment always want to leave their environment while the reverse occurs for individuals born in an educated environment.