June 2007

IZA DP No. 2833: Be as Careful of the Books You Read as of the Company You Keep: Evidence on Peer Effects in Educational Choices

Revised version published as "Identifcation of Social Interactions through Partially Overlapping Peer Groups" in: American Economic Journal: Applied Economics, 2010, 2(2), 241-75

In this paper we investigate whether peers’ behavior influences the choice of college major. Using a unique dataset of students at Bocconi University and exploiting the organization of teaching at this institution, we are able to identify the endogenous effect of peers on such decision through a novel identification strategy which solves the common econometric problems of studies of social interactions. Results show that, indeed, one is more likely to choose a major when many of her peers make the same choice. We estimate that, when it diverts students from majors in which they seem to have a relative ability advantage, this effect leads to lower average grades and graduation mark, a penalty that could cost up to 1,117 USD a year in the labor market.