For whom the reductions count: A quantile regression analysis of class size and peer effects on scholastic achievement

In this paper the controversial educational topic of class size reduction is addressed. Controlling for a large number of observable characteristics and potential endogeneity in the class size variable, an educational production function is estimated using a quantile regression technique. The "conventional wisdom" that class size reduction is a viable means to increase scholastic achievement is discounted. Rather, the results point towards a far stronger peer effect through which class size reduction may play an important role. Due to heterogeneity in the newly identified peer effect, class size reduction is shown to be a potentially regressive policy measure.