A model of vertically differentiated education
We analyse the allocation of students who differ in their ability to two school types when there are peer effects (students learn more the better their classmates) and expected income after school depends also on the average productivity of peers. We derive the allocation under free school choice and decentralized determination of the academic level; we show that, compared to the social optimum, the level is suboptimal and to many students attend the better school type. A social planner can improve on the allocation under free school choice by prescribing a higher academic level.
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Volume (Year): 69 (1999)
Issue (Month): 1 (February)
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- Laura M. Argys & Daniel I. Rees & Dominic J. Brewer, 1996. "Detracking America's schools: Equity at zero cost?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 15(4), pages 623-645.
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- Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-59, June.
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