The Economics of Education: Vouchers and Peer Group Effects

Lessons from the history of US school reforms and empirical analysis have painted a picture of schools as complex institutions producing a product that is influenced by the various choices made by parents and school bureaucracies who respond to institutional incentives. School vouchers change the incentives faced by these agents. This paper finds that when parents can choose schooling independent of housing, greater residential integration results, which brings with it much better equity properties than a more simple analysis would imply. While the fears by some that schools will become increasingly differentiated under voucher policies are well founded, this greater differentiation does not have to imply greater inequities in educational opportunities. In fact, under some plausible scenarios, the greater differentiation of schools leads to greater equity and greater efficiency in both public and private schooling.