Linking Education Choice to Institutions and Peers

How do institutions and peer groups shape skills? We exploit a universal free-choice reform signaling less importance of advanced math-science in high school. We show how it amplified the fall in math-science skills and triggered gender convergence as boys crowded-in the free-choice reform. We show that these empirical patterns are consistent with a model where education choices are determined by the interaction of (i) material costs and benefits embedded in institutions, (ii) identity costs associated with breaking the norm of following older siblings' education choice, and (iii) social reputation in the school-cohort peer group that alters the importance of identity costs. The model allows for both complementarity and substitutability between individual and social motives. This is imperative for explaining the empirical facts as complementarity (or conformity) arises endogenously in equilibrium when individuals infer the social norm from their school-cohort peers' education choices