Endogenous Peer Effects in School Participation

Gustavo J. Bobonis, University of Toronto
Frederico S. Finan, University of California, Berkeley

A remaining obstacle in the literature on peer effects has been the inability to distinguish between peer effects that are determined by a person’s reference group behavior (endogenous peer effects), and effects generated as a result of specific background characteristics of the groups themselves (contextual peer effects). This paper identifies and estimates endogenous peer effects on children’s school participation decisions using evidence from the Mexican PROGRESA program, a school subsidy program targeted at children of the rural poor. Because program eligibility was randomly assigned, we use this exogenous variation in school participation to identify peer effects on the school enrollment of ineligible children residing in the same communities. We find that peers have considerable influence on the enrollment decision of program-ineligible children, and these effects are concentrated among children from relatively poorer households. Our findings imply that educational policies aimed at encouraging enrollment can produce large social multiplier effects.