| dc.description.abstract |
<p>The rigorous economic analysis of peer group formation is a burgeoning subject.
Much has been written about how peers influence 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, the first chapter of this document 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. Once a peer group is formed, however, the effects
of the peer group become much more interesting. The second chapter of this document
attempts to find an effect of having friends of a similar race and who are involved
in similar activities. Using a strategy that corrects for the endogeneity of peer
effects by instrumenting using variables at the ``grade within school'' level, it
is shown that friendship diversity can help whites increase achievement. Although
not much significance was found with other races, most of the strategies pushed towards
the direction of racial diversity aiding achievement. Regarding extracurricular activities,
it is found that there is a benefit in having friends in common individual academic
activities, conditional on the respondent only belonging to academic or scholastic
clubs. There are insignificant effects in having friends in common sports, conditional
on the respondent only participating in sports. Potential future work for both chapters
can include models describing the benefit of having various friends and the probability
of forming those friendships, which can be used to simulate redistribution policies.</p>
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