Preferences, Selection, and Value Added: A Structural Approach

This paper investigates two main questions: i) What do applicants take into consideration when choosing a high school? ii) To what extent do schools contribute to their students' academic success? To answer these questions, we model students' preferences and derive demand for each school by taking each student's feasible set of schools into account. We obtain average valuation placed on each school from market clearing conditions. Next, we investigate what drives these valuations by carefully controlling for endogeneity using a set of creative instruments suggested by our model. Finally, controlling for mean reversion bias, we look at each school's value-added. We find that students infer the quality of a school from its selectivity and past performance on the university entrance exam. However, the evidence on the value- added by schools shows that highly valued or selective schools do not have high value- added on their students' academic outcomes.