What does the term "peer effects" mean in a school environment? It includes the effects of students' teaching one another, but that is only the most direct form of peer effects. Intelligent, hard-working students can affect their peers through knowledge spillovers and through their influence on academic and disciplinary standards in the classroom. Alternatively, misbehaving students may disrupt the classroom, thereby sapping their teacher's time and energy. The makeup of a classroom--its average family income, the number of children with disabilities, its racial and gender balance--can also create peer effects. Children with learning disabilities may draw disproportionately on their teacher's time; racial or gender tension in the classroom may interfere with learning; wealthier parents may purchase learning resources that get spread over a classroom. Peer effects may even operate through the ways in which teachers or administrators react to students. For instance, if teachers believe that less should be expected of minority children, they might lower their academic standards when confronted with a classroom that has a high share of black or Hispanic students. The other students in such a classroom would experience negative peer effects, not due to the minority students' influence but because of the teacher's assumptions.
Peer effects, if they do indeed exist, have implications for a number of policy issues in education. For example, the literature on school finance and control is currently absorbed with the question of whether students are affected by the achievement of their schoolmates. If peer effects exist at school, a school-finance system that encourages an efficient distribution of peers among all schools will make society's investments in student learning more productive. The debate over" tracking," the system in which students are exposed only to peers with similar achievement, turns partly on the question of whether being concentrated in lower-level classrooms merely exacerbates the problems of low-achieving children. Desegregation plans that assign students to schools outside their neighborhood or school district also rest partly on the belief that one's peers can exercise enormous influence over one's performance.
However, there are two principal difficulties for theories that rely on peer effects. First, however much sense the theory of peer effects makes, there are formidable obstacles to estimating them, Although some credible estimates of peer effects do exist, people often rely on evidence that is seriously biased by selection effects. For instance, if everyone in a group is high achieving, many observers assume that achievement is an effect of belonging to the group instead of a reason for belonging to it.
Also, the most popular model used by researchers to estimate peer effects (the "baseline" model) assumes that peer effects are a zero-sum phenomenon--that is, in order to give one student a better peer, that peer must be taken away from another student; the two effects cancel one another out, According to the baseline model, a student's reading score would be affected linearly by the average reading score of his classmates, Regardless of how one allocates peers, total societal achievement remains the same under the baseline model. But many arguments assume that total societal achievement can be increased if peers are redistributed. For instance, the argument against "tracking" is based on the notion that both low- and high-achieving students benefit from being exposed to one another in the classroom. By contrast, the idea behind "gifted and talented" programs is that high-achieving students benefit from being among one another. Thus, although it is tempting to dismiss the baseline model as naive or restrictiv e, if one were able to show, empirically, that the baseline model adequately described peer effects, some interesting theories would fall by the wayside. …