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...exist at least a path of length 2 between two individuals.26 In other words, if i and j are friends and j and k are friends, it does not necessarily imply that i and k are also friends. Even in linear-in-means models, the Manski’s (1993) reflection problem is thus eluded. These results are formally derived in Bramoulle et al. (2009) (see, in particular, Proposition 3) and used in Calvo-Armengol et al. (2009). Cohen-Cole (2006) presents a similar argument, that is, the use of outgroup effects, to achieve the identification of the endogenous group effect in the linear-in-means model (see also Weinberg et al. 2004; Lin 2008; Laschever 2009). 3.2.2 Endogenous Network Formation/Correlated Effects. Although this setting allows us to solve the reflection problem, the estimation results might still be flawed because of the presence of unobservable factors affecting both individual and peer behavior. It is thus difficult to disentangle the endogenous peer effects from the correlated effects, that is, from effects arising from the fact that individuals in the same group tend to behave similarly because they face a common environment. If individuals are not randomly assigned into groups, this problem might ori...

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... social reasons. As a consequence, what the researcher perceives as asneighbourhood effect through the estimated γ parameter may simply be a spurious correlation reflectingscommon residential choice (=-=Weinberg et al, 2004-=-). Such unobserved individual/household characteristicssare in fact incorporated in the error term εi, thus generating a correlation between εi and the observeds10sregressor Nn(i) (recall that in equa...

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...c public policy initiatives (typically involving subsidized housing) that create exogenous variation in neighborhood environments for tenants. Studies employing this approach have reached diametrically opposed conclusions, even within the same national context (cf. Rosenbaum et al., 2002; Briggs, 1997, 1998; Oreopolis, 2003; Edin et al., 2003; Aslund and Fredricksson, 2005). • Fixed Effect Models based on Longitudinal Data: Unobserved, time-invariant characteristics of individuals that may lead to both neighborhood selection and labor force outcomes are measured by individual dummy variables. Weinberg et al. (2004) find that hours worked and incomes are strongly related to neighborhood poverty rates in a non-linear fashion. • Difference models based on longitudinal data: Unobserved, time-invariant characteristics are eliminated by measuring differences in between two periods. Bolster et al. (2004) find a British neighborhood deprivation index has statistically significant but small impact on individuals’ income growth. • Sibling Studies: Longitudinal data on siblings is collected from surveys of households who reside in a variety of neighborhoods during the children’s upbringing but share unobserved par...

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... and Mayer [3], Atkinson et al. [4], Sarkassian et al. [5]). First, Wilson [6] stressed the importance of socialisation processes within neighbourhoods, especially negative socialization processes in neighbourhoods with concentrated poverty. Next to family, school and workplace, the neighbourhood can be seen as an important socialisation ‘institute’, providing residents with role models. Neighbourhoods with a high share of low income households or with high levels of unemployed or people on benefits have indeed been found to have negative effects on the prospects of residents (Weinberg et al. [7], Van der Klaauw and Van Ours [8]). Second, negative stigmatisation of neighbourhoods may influence residents’ prospects, for example during job application procedures (Carpenter et al. [9]). Lastly, social networks within neighbourhoods may influence people’s chances. The neighbourhood forms a substantial part of the social network. This holds especially for those with a weak economic position and little other contact opportunities, for instance the unemployed (cf. Middelkoop and Declerck [10]). If these networks are homogenous, people may not be able to establish ‘weak ties’ with outsiders –...