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Can an educational system without ability tracking and signalling motive generate
self-sorting of students by ability? We build a theoretical model to show that
when seeking positive peer effects is combined with costly educational choices, even
in the absence of exogenous requirements on achievements used in standard tracking
systems, high-achieving students self-sort by choosing costly courses, which we
refer to as endogenous tracking. We use data from French middle schools, where
students were grouped together based on their choices between Spanish and effort-costly
German language classes, to show that costly language class choices lead to
sorting and to identify peer effects.
