Provision of private education and accessibility to top public schools

Debates over school choice policies are central to discussions of public policies. Although such policies allow more flexible schooling options, they have also raised concerns over the cream skimming effect. However, empirical evidence on the cream skimming effect is controversial. This study evaluates the effects of restrictions on student selection by private schools on the accessibility to high‐quality public education. Based on multiple datasets of housing transactions and school quality, we devise a boundary‐based difference‐in‐differences model using a policy shock in Shanghai, China. We show that when private schools are restricted from student selection, the access to high‐quality public schools becomes more costly. This is indicated by not only the explicit cost of the enlarged price premium of houses zoned to top public schools but also various types of implicit costs. As households with school‐aged children are mostly young and likely budget‐constrained, parents compete for seats in top schools through multiple strategies, including purchasing smaller homes and searching less before the transaction, resulting in buying less satisfying homes. They also borrow more mortgage loans to sacrifice household consumption in the future and take the legal risk of evading more transaction taxes.