Measuring Peer Group Effects: A Study of Teenage Behavior

Abstract

Individuals or households often have some scope for choice of peer groups, whether through the selection of neighborhood of resi- dence, school, or friends. This study addresses the estimation of peer group effects in cases in which measures of peer group influ- ence are potentially endogenous variables. Using a rich data set on individual behavior, the paper explores teenage pregnancy and school dropout behavior. For both cases, the estimation of a straight- forward single-equation model yields statistically significant peer group effects; however, these effects disappear under simultaneous equation estimation. The results are robust and suggest the need for careful modeling of the choice of peer groups.