Chapter 12: Estimating Peer Effects on Career Choice: A Spatial Multinomial Logit Approach

Peers and friends are among the most influential social forces affecting adolescent behavior. In this chapter, the authors investigate peer effects on post high school career decisions and on school choice. The authors define peers as students who are in the same classes and social clubs and measure peer effects as spatial dependence among them. Utilizing recent developments in spatial econometrics, the authors formalize a spatial multinomial choice model in which individuals are spatially dependent in their preferences. The authors estimate the model via pseudo maximum likelihood using data from the Texas Higher Education Opportunity Project. The authors do find that individuals are positively correlated in their career and college preferences and examine how such dependencies impact decisions directly and indirectly as peer effects are allowed to reverberate through the social network in which students reside.