Does cream-skimming curdle the milk? A study of peer effects

The determinants of education quality remain a puzzle in much of the literature. In particular, no one has been able to isolate the effect of the quality of a student's peers on achievement. I identify this by considering the introduction of a magnet school into a school district. The magnet school selects high quality students from throughout the school district, generating plausibly exogenous variation in the quality of classmates remaining to those students in the regular schools. I find that the loss of high ability peers lowers the performance of low-scoring students remaining in regular schools. (C) 2004 Elsevier Ltd. All rights reserved.