IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Information asymmetry and equilibrium monitoring in education

  • Ferreyra, Maria Marta
  • Liang, Pierre Jinghong
Registered author(s):

    We develop a theoretical and computational model of school choice and achievement that embeds information asymmetries in the provision of education. Because school effort is unobservable to households and policymakers, schools have an incentive to under provide effort. This moral hazard affects both public and private schools, although public schools are subject to an additional distortion because of limited competition and fixed funding. Household monitoring of schools can mitigate moral hazard, but some households may free-ride on the monitoring of others. Using our calibrated model we simulate two policies aimed at raising achievement: public monitoring of public schools and private school vouchers. Our results indicate that in large scale settings no single tool may suffice. The reason is twofold: a) no tool raises achievement or welfare for all households; and b) since the extent of moral hazard is endogenous, the application of each tool has unintended consequences that limit its own effectiveness. Results also indicate that setting the policy parameters for public schools at the levels preferred by the majority of households may mitigate the distortions. Nonetheless, the current actual values of these parameters seem to match more closely the preferences of public schools than the preferences of parents.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Journal of Public Economics.

    Volume (Year): 96 (2012)
    Issue (Month): 1 ()
    Pages: 237-254

    in new window

    Handle: RePEc:eee:pubeco:v:96:y:2012:i:1:p:237-254
    Contact details of provider: Web page:

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Huddart, Steven & Liang, Pierre Jinghong, 2005. "Profit sharing and monitoring in partnerships," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 153-187, December.
    2. Andrew J. Houtenville & Karen Smith Conway, 2008. "Parental Effort, School Resources, and Student Achievement," Journal of Human Resources, University of Wisconsin Press, vol. 43(2), pages 437-453.
    3. Paul Gregg & Carol Propper & Elizabeth Washbrook, 2007. "Understanding the relationship between parental income and multiple child outcomes: A decomposition analysis," CASE Papers case129, Centre for Analysis of Social Exclusion, LSE.
    4. Gianni De Fraja & Pedro Landeras, 2004. "Could do Better: The Effectiveness of Incentives and Competition in Schools," CEIS Research Paper 48, Tor Vergata University, CEIS.
    5. Rajashri Chakrabarti, 2004. "Impact of Voucher Design on Public School Performance: Evidence from Florida and Milwaukee Voucher Programs," Econometric Society 2004 North American Summer Meetings 221, Econometric Society.
    6. Figlio, David N. & Kenny, Lawrence W., 2009. "Public sector performance measurement and stakeholder support," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1069-1077, October.
    7. Cecilia Elena Rouse & Jane Hannaway & Dan Goldhaber & David Figlio, 2013. "Feeling the Florida Heat? How Low-Performing Schools Respond to Voucher and Accountability Pressure," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 251-81, May.
    8. MacLeod, Bentley, 2009. "Anti-Lemons: School Reputation and Educational Quality," Department of Economics, Working Paper Series qt3rc708kd, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    9. Sanford Grossman & Oliver Hart, . "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers 15-80, Wharton School Rodney L. White Center for Financial Research.
    10. Julie Berry Cullen & Brian A Jacob & Steven Levitt, 2006. "The Effect of School Choice on Participants: Evidence from Randomized Lotteries," Econometrica, Econometric Society, vol. 74(5), pages 1191-1230, 09.
    11. 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.
    12. Dennis Epple & David Figlio & Richard Romano, 2000. "Competition Between Private and Public Schools: Testing Stratification and Pricing Predictions," NBER Working Papers 7956, National Bureau of Economic Research, Inc.
    13. McMillan, Robert, 2005. "Erratum to "Competition, incentives, and public school productivity"," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1133-1154, June.
    14. Stinebrickner Ralph & Stinebrickner Todd R., 2008. "The Causal Effect of Studying on Academic Performance," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-55, June.
    15. Caroline Hoxby, 2000. "Would School Choice Change the Teaching Profession?," NBER Working Papers 7866, National Bureau of Economic Research, Inc.
    16. Walsh, Patrick, 2010. "Is parental involvement lower at larger schools?," Economics of Education Review, Elsevier, vol. 29(6), pages 959-970, December.
    17. Nechyba, Thomas J, 1999. " School Finance Induced Migration and Stratification Patterns: The Impact of Private School Vouchers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(1), pages 5-50.
    18. Bernardo Lara & Alejandra Mizala & Andrea Repetto, 2009. "The Effectiveness of Private Voucher Education: Evidence from Structural School Switches," Documentos de Trabajo 263, Centro de Economía Aplicada, Universidad de Chile.
    19. Miller, Nolan H., 1997. "Efficiency in Partnerships with Joint Monitoring," Journal of Economic Theory, Elsevier, vol. 77(2), pages 285-299, December.
    20. Hsieh, Chang-Tai & Urquiola, Miguel, 2006. "The effects of generalized school choice on achievement and stratification: Evidence from Chile's voucher program," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1477-1503, September.
    21. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, June.
    22. Justine S. Hastings & Jeffrey M. Weinstein, 2007. "Information, School Choice, and Academic Achievement: Evidence from Two Experiments," NBER Working Papers 13623, National Bureau of Economic Research, Inc.
    23. Warr, Peter G., 1982. "Pareto optimal redistribution and private charity," Journal of Public Economics, Elsevier, vol. 19(1), pages 131-138, October.
    24. Roberts, Russell D, 1984. "A Positive Model of Private Charity and Public Transfers," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 136-48, February.
    25. Albornoz-Crespo, Facundo & Berlinski, Samuel & Cabrales, Antonio, 2010. "Incentives, resources and the organization of the school system," CEPR Discussion Papers 7964, C.E.P.R. Discussion Papers.
    26. Daron Acemoglu & Michael Kremer & Atif Mian, 2003. "Incentives in Markets, Firms and Governments," NBER Working Papers 9802, National Bureau of Economic Research, Inc.
    27. Peter Rangazas, 1997. "Competition and Private School Vouchers," Education Economics, Taylor & Francis Journals, vol. 5(3), pages 245-263.
    28. Steven Huddart & Pierre Jinghong Liang, 2003. "Accounting in Partnerships," American Economic Review, American Economic Association, vol. 93(2), pages 410-414, May.
    29. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
    30. Maria Marta Ferreyra, 2007. "Estimating the Effects of Private School Vouchers in Multidistrict Economies," American Economic Review, American Economic Association, vol. 97(3), pages 789-817, June.
    31. David N. Figlio & Maurice E. Lucas, 2004. "What's in a Grade? School Report Cards and the Housing Market," American Economic Review, American Economic Association, vol. 94(3), pages 591-604, June.
    32. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
    33. Datar, Ashlesha & Mason, Bryce, 2008. "Do reductions in class size "crowd out" parental investment in education?," Economics of Education Review, Elsevier, vol. 27(6), pages 712-723, December.
    34. repec:mpr:mprres:6364 is not listed on IDEAS
    35. Chiang, Hanley, 2009. "How accountability pressure on failing schools affects student achievement," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1045-1057, October.
    36. Derek Neal, 2011. "The Design of Performance Pay in Education," NBER Working Papers 16710, National Bureau of Economic Research, Inc.
    37. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:96:y:2012:i:1:p:237-254. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.