SCHOOL-BASED PEER EFFECTS AND JUVENILE BEHAVIOR.

Publication: Review of Economics and Statistics

Publication Date: 01-MAY-01

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COPYRIGHT 2001 MIT Press Journals

I. Introduction

MANY social scientists argue that social interactions play an important role in determining behavioral and economic outcomes. Wilson (1987, 1996), for example, argues that youths are collectively socialized through their contact with adults. Coleman (1990), Crane (1991), Becker (1996), and Durlauf (1997) posit contagious effects in which the probability that a youth behaves in a certain manner depends positively on the prevalence of such behavior among the youth's peers. And Anderson (1991) describes the allure of a "street culture" that values drug use and fosters delinquency.

The presence of neighborhood and peer effects is frequently offered as justification for policies that seek to integrate neighborhoods and public schools. The empirical literature, however, is far from conclusive concerning the magnitude of these effects, as well as the relative importance of the various forms of social interactions experienced by youths. Two methodological issues, in particular, stand out: first, it is difficult to distinguish among the various possible forms of social interactions; second, endogeneity problems are ubiquitous in this realm and may lead to overestimation of peer influences.

Manski (1995) identifies two broad forms of social interactions: in the first, youth behavior is influenced by the exogenous characteristics of the youth's reference group; in the second, youth behavior is influenced by the prevalence of that behavior in the group. An example may help clarify this distinction. According to the first hypothesis, a youth's propensity to drop out of school will be affected by the mean parental education within the youth's reference group; according to the second, a youth's propensity to drop out will be affected by the proportion of the youth's peers who drop out. Distinguishing between these two effects, labeled by Manski (1995) as "contextual" and "endogenous" effects, is important because they imply different responses to policy intervention.(1) Whereas endogenous effects give rise to bidirectional influences (and hence the possibility of social multipliers), contextual influences do not imply amplified responses to exogenous shocks.

Manski (1995) also raises a third possibility. Spurious estimates of peer-group effects may be erroneously interpreted as true endogenous or contextual effects. Spurious effects arise when youths in the same reference group behave similarly because they share a common set of unobserved characteristics. This may occur if families endogenously sort across neighborhoods and school districts. More precisely, if families sort themselves across school districts according to their willingness and ability to pay for better peer influences, and if such parental "conscientiousness" is unobserved, the estimates of peer influences will be biased upward. Although a few studies explicitly account for this source of bias (Aaronson, 1998; Rosenbaum, 1993; Evans, Oats, & Schwab, 1992), the majority of studies do not.

In this paper, we evaluate the importance of school-based peer influences in determining youth behavior. We use a sample of tenth-graders drawn from the National Education Longitudinal Survey (NELS) to test for peer-group influences in five different activities: drug use, alcohol drinking, cigarette smoking, church going, and dropping out of school. Our empirical strategy is designed to address the two methodological concerns discussed above: distinguishing endogenous from contextual effects and distinguishing real peer influences from spurious effects.

Our focus on schools rather then neighborhoods as the relevant sphere of interaction is intended to limit the importance of contextual effects. We argue that students are less exposed to the family background of their school peers than they are exposed to the family background of peers residing in the same neighborhood. Based on this contention, we argue that observable social interaction effects at the school level are more likely to be driven by bidirectional peer influences (rather than contextual effects) than are social interaction effects estimated at the neighborhood level.

To address the issue of identification, we use information on household mobility to conduct a test for endogenous peer groups, an idea previously suggested by Glaeser (1996). We argue that endogeneity bias of peer-group effect estimates should be less severe for long-term residents, because their residential and school decisions were made taking into account past, rather than present, school quality and peer-group composition. Indeed, to the extent that schools change with time and that endogenous sorting across schools is pervasive, peer-effect estimates should be higher for recent movers than for long-term residents. Estimating separate equations for long-term residents and recent movers and testing for differential effects provides then a simple test of endogeneity of school choices.

We find strong evidence of social interaction effects for all activities analyzed. These effects remain after controlling for several personal and school characteristics, family background variables, and several measures of parental involvement in the youth's daily life. On the other hand, we do find a relatively larger peer-group effects for youth from "recent-mover" families for two of the five activities analyzed (drug use and alcohol drinking), although the difference is statistically significant only for drug use. This provides mixed evidence concerning the extent to which endogenous sorting across schools inflates the estimates of peer influences.

We also implement a simple nonparametric test of social interactions in the spirit of Glaeser et al. (1996). The results of this test strongly suggest the presence of social interactions. We find, in particular, that, for all variables analyzed, the variance of school averages is much higher than would be expected in the absence of social interactions. The same result is obtained after extensively controlling for school heterogeneity. On the whole, this alternative approach reinforces the findings of substantial school-based peer effects.

II. Past Research and Empirical Methodology

A. Past Research

Although the sociological literature has placed great emphasis on the importance of social interactions, economists have traditionally downplayed interactions not mediated through markets. Recently, however, several attempts have been made to formalize the role of social interactions in human behavior and in the formation of preferences. Becker (1996), for example, proposes a "social capital" component to the utility function that depends on both one's choices and the choices of one's peers.(2) In Becker's theory, "an increase in a person's social capital increases his demand for goods and activities that are complements to the capital and reduces the demand for those that are substitute" (p. 13) Accordingly, "a teenager may begin to smoke, join a gang, and neglect his studies mainly because his friends smoke, are gang members, and do not pay attention to school" (p. 13).

Several explanations of social interactions that do not directly appeal to preferences have also been proposed.(3) One can imagine, for example, a situation in which drug use is harshly punished and the probability of detection declines as more people use drugs. Under these circumstances, drug use by one's peers will surely reduce one's chances of getting caught, thus raising one's propensity to use drugs. (See Sah (1991) for a model along these lines.) Alternatively, one can imagine a situation in which drug use is not only prevalent but is also perceived as a matter of status. Under these circumstances, deviators (those who dare to say no) are likely to be punished through ostracism or merciless bullying. This will in turn create strong incentives to conform and so will raise the propensity to use drugs. (See Akerlof (1997) and Bernheim (1994) for formalizations of this idea.)

Informational externalities can also give rise to social interactions. For example, if there is uncertainty about the relative payoffs of staying in school vis-a-vis dropping out, one may use the previous decisions of one's peers to make inferences. Under some circumstances, it will be optimal to follow the herd, that is, to drop out if everybody is dropping out (Bikhchandani, Hirshleifer, & Welch, 1992). If this is the case, peer-group effects will arise even though conformity itself does not necessarily entail a reward, pecuniary or otherwise.

The empirical research on the effects of social interactions on socioeconomic outcomes can be roughly divided into two groups. The first group is preoccupied mainly with contextual effects, reflecting the long-standing interests of sociologists in background. The second group is preoccupied mainly with endogenous effects, reflecting the renewed interests of economists in externalities.

There are several empirical studies of contextual interactions. Mayer (1991) and Evans et al. (1992) estimate the effect of the average socioeconomic status of a school's student body on dropping out, teen pregnancy, and a few other social outcomes. And O'Regan and Quigley (1996) study the relationship between neighborhood poverty rates and youth employment and "idleness" rates. (See also Brooks-Gunn, Duncan, Kelabanov, and Sealand (1993), Corcoran, Gordon, Laren, and Solon (1992), and Crane...

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