As children reach adolescence, peer interactions become increasingly central to their development, whereas the direct influence of parents wanes. Nevertheless, parents may continue to exert leverage by shaping their children’s peer groups. We study interactions of parenting style and peer eﬀects in a model where children’s skill accumulation depends on both parental inputs and peers, and where parents can aﬀect the peer group by restricting who their children can interact with. We estimate the model and show that it can capture empirical patterns regarding the interaction of peer characteristics, parental behavior, and skill accumulation among US high school students. We use the estimated model for policy simulations. We ﬁnd that interventions (e.g., busing) that move children to a more favorable neighborhood have large eﬀects but lose impact when they are scaled up because parents’ equilibrium responses push against successful integration with the new peer group.
Agostinelli, Francesco; Doepke, Matthias; Sorrenti, Giuseppe; and Zilibotti, Fabrizio, "It Takes a Village: The Economics of Parenting with Neighborhood and Peer Effects" (2020). Cowles Foundation Discussion Papers. 19.