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Competition between Private and Public Schools, Vouchers, and Peer-Group Effects

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  • Epple, Dennis
  • Romano, Richard E

Abstract

A theoretical and computational model with tax-financed, tuition-free public schools and competitive, tuition-financed private schools is developed. Students differ by ability and income. Achievement depends on own ability and on peers' abilities. Equilibrium has a strict hierarchy of school qualities and two-dimensional student sorting with stratification by ability and income. In private schools, high-ability, low-income students receive tuition discounts, while low-ability, high-income students pay tuition premia. Tuition vouchers increase the relative size of the private sector and the extent of student sorting and benefit high-ability students relative to low-ability students. Copyright 1998 by American Economic Association.

Suggested Citation

  • Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March.
  • Handle: RePEc:aea:aecrev:v:88:y:1998:i:1:p:33-62
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