Social Interactions with Endogeneity*

We estimate endogenous peer effects and exogenous contextual effects in social interactions models with endogenous covariates. Our method uses individual instruments for endogenous covariates, but does <i>not</i> require additional instruments for simultaneity in outcomes, which are often hard to find in settings with contextual effects. We apply our method to estimate peer effects in Grade 3 math scores of elementary school students in the State of Tennessee. Using lagged class sizes and teacher qualification as instruments for Grade 2 scores, we find significant evidence for positive peer effects and path dependence on G2 scores.