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 not 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.