Document Type

Working Paper

Date of This Version

5-1-2009

Abstract

The rigorous economic analysis of peer group formation is a burgeoning subject. Much has been written about how peers in uence an individual's behavior, and these effects are quite prevalent. However, less has been written on how exactly these peer groups begin and the resulting consequences of their formation. A reason for the dearth of knowledge on peer group formation is the lack of quality data sets that clearly define one's peers. To resolve this issue, this paper explores data which allows a peer group to be defined openly through self nominations. Using these nominations as well as characteristics of the students and their friends, it is possible to see on what dimensions these individuals are sorting into friendships. The data suggests that there is heavy sorting within race and academic ability. Additionally, tests for statistical discrimination on race and academics show that it is exhibited towards blacks and Hispanics. There is also weak evidence of statistical discrimination against whites. Empirical analysis also shows that the degree of statistical discrimination decreases for blacks and Hispanics over a year, however, there is little change for whites over the same period. This result suggests a process of learning about a noisy signal on academic characteristics. Future work includes models describing the benefit of having various friends and the probability of forming those friendships, which can be used to simulate redistribution policies.

Working Paper Number

0905

Included in

Economics Commons

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