We take cohorts of entering freshmen at the United States Air Force Academy and assign half to peer groups designed to maximize the academic performance of the lowest ability students. Our assignment algorithm uses nonlinear peer effects estimates from the historical pre-treatment data, in which students were randomly assigned to peer groups. We find a negative and significant treatment effect for the students we intended to help. We provide evidence that within our “optimally” designed peer groups, students avoided the peers with whom we intended them to interact and instead formed more homogeneous subgroups. These results illustrate how policies that manipulate peer groups for a desired social outcome can be confounded by changes in the endogenous patterns of social interactions within the group.

In 2005, Hurricanes Katrina and Rita forced many children to relocate across the Southeast. While schools quickly enrolled evacuees, families in receiving schools worried about the impacts on incumbent students. We find no effect, on average, of the inflow of evacuees on achievement in Houston. In Louisiana we find little impact on average and we reject linear-in-means models. Moreover, we find that student achievement improves with high achieving peers and worsens with low achieving peers. Finally, an increase in the inflow of evacuees raised incumbent absenteeism and disciplinary problems in Houston's secondary schools. (JEL I21, Q54)

This paper provides empirical evidence about the effect of unearned income on earnings, consumption, and savings. Using an original survey of people playing the lottery in Massachusetts in the mid-1980's, we analyze the effects of the magnitude of lottery prizes on economic behavior. The critical assumption is that among lottery winners the magnitude of the prize is randomly assigned. We find that unearned income reduces labor earnings, with a marginal propensity to consume leisure of approximately 11 percent, with larger effects for individuals between 55 and 65 years old. After receiving about half their prize, individuals saved about 16 percent. (JEL C81, D12, E21, J22, J26)