Identifying Peer Effects on Student Academic Effort

Peer influences on academic outcomes are often studied using GPA as a proxy variable for students' academic effort. We show that this may bias the peer effects when the network includes isolated students. This is because GPA depends on unobserved factors that do not influence isolated and non-isolated students in the same way. To resolve this issue, we propose an identification strategy that distinguishes unobserved shocks exerted on GPA without influencing the effort from unobserved students' preference shocks. Applying our approach to Add Health data shows that the peer effect estimate using standard approaches is biased downward