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The Use of Instrumental Variables in Peer Effects Models
Author(s) -
Hinke Stephanie,
Leckie George,
Nicoletti Cheti
Publication year - 2019
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12299
Subject(s) - instrumental variable , econometrics , peer effects , outcome (game theory) , psychology , variables , peer review , variable (mathematics) , statistics , mathematics , social psychology , biology , mathematical analysis , mathematical economics , biochemistry
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.