Peer Effects and Social Networks in Education

We develop a model that shows that, at the Nash equilibrium, the outcome of each individual embedded in a network is proportional to his/her Katz–Bonacich centrality measure. This measure takes into account both direct and indirect friends of each individual, but puts less weight to his/her distant friends. We then bring the model to the data using a very detailed dataset of adolescent friendship networks. We show that, after controlling for observable individual characteristics and unobservable network specific factors, a standard deviation increase in the Katz–Bonacich centrality increases the pupil school performance by more than 7% of one standard deviation.