The effect of ordinal rank in school on educational achievement and income in Sweden

This paper investigates the causal effect of ordinal rank on students' academic performance in the short run. This paper provides the first direct evidence of the relationship between objective rank and students' self-perceived rank, as well as of the impact of the self-perceived rank on students' academic attainments. The results show that students' objective rank has a significant positive effect on students' test scores. Nonetheless, when self-perceived rank and the objectively measured rank are considered simultaneously, the self-perceived rank dominates the effect on the students' educational achievement, indicating that the objective rank largely functions as a proxy for the rank of which students are aware. Taking advantage of the very detailed survey questions aimed at students, parents, and teachers, a large set of potential mechanisms are examined in the paper.

We use data from two experiments that randomly assign students to groups to show that, so long as ordinal rank has a causal effect on educational achievement, estimates of the effects of peer ability composition obtained from models that omit rank are downward biased. This finding holds both in the standard linear-in-means model as well as in models that allow for non-linear and heterogeneous peer effects, and contributes to explain why previous studies have detected only modest effects of peer ability on achievement. We also illustrate how this finding helps understand the mechanisms behind the effects of ability tracking policies.

We use data from two experiments that randomly assign students to groups to show that, so long as ordinal rank has a causal effect on educational achievement, estimates of the effects of peer ability composition obtained from models that omit rank are downward biased. This finding holds both in the standard linear-in-means model as well as in models that allow for non-linear and heterogeneous peer effects, and contributes to explain why previous studies have detected only modest effects of peer ability on achievement. We also illustrate how this finding helps understand the mechanisms behind the effects of ability tracking policies.