It Takes a Village: The Economics of Parenting with Neighborhood and Peer Effects

During adolescence, peer interactions become increasingly central to children’s development, whereas the direct influence of parents wanes. Nevertheless, parents can continue to exert leverage by shaping their children’s peer groups. We construct and estimate a model of parenting with peer and neighborhood effects where parents intervene in peer formation and show that the model captures empirical patterns of skill accumulation, parenting style, and peer characteristics among US high school students. We find that interventions that move children to better neighborhoods lose impact when they are scaled up, because parents’ equilibrium responses push against successful integration with the new peer group.