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The use of instrumental variables in peer effects models

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JournalOxford Bulletin of Economics and Statistics
DateAccepted/In press - 12 Jan 2019
DateE-pub ahead of print (current) - 4 Feb 2019
Early online date4/02/19
Original languageEnglish

Abstract

Instrumental variables are often used to identify peer effects. This paper shows that
instrumenting the \peer average outcome" with \peer average characteristics" requires the researcher to include the instrument at the individual level as an explanatory variable. We highlight the bias that occurs when failing to do this.

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©2019 The Authors.

    Research areas

  • Instrumental variables, Peer effects, Bias

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