Two recent studies (in Learning and Instruction and the Journal of Literary Research) look at the effectiveness of different sorts of feedback for improving student writing. While the studies offer conflicting evidence about whether formal peer review leads to improved writing, both studies suggest that informal, non-directive feedback is the most likely to lead students to make complex revisions that lead to significant improvement in their writing.
[Strijbos, J. W., Narciss, S., & Dunnebier, K. (2010). Peer feedback content and sender’s competence level in academic writing revision tasks: Are they critical for feedback perceptions and efficiency? Learning and Instruction, 20, 291–303.
Covilla, A. E. (2010). Comparing peer review and self-review as ways to improve college students’ writing. Journal of Literacy Research, 42(2), 199–226.]