Introducing School Choice into Multi-District Public School Systems

Predicting the impact of school finance and school choice policies is complicated in large part because of the multitude of household choices that are simultaneously influenced within a general equilibrium setting. Parents choose which neighborhoods in which school districts to reside in, which schools - public or private - to send their children to, and how to participate in political process that affects education policies. As a result of these choices, property values and therefore budget sets change as different policies are introduced, and the nature of schools changes as inputs - including different mixes of children and parents - change. Furthermore, school administrators in both private and public schools may change their behavior under different institutional arrangements. The purpose of this paper is therefore to shed light on how school choice policies change opportunities faced by different types of households and their children as the general equilibrium forces unfold. The analysis employs general equilibrium simulations to accomplish this. These simulations are derived from a three-district model of low, middle and high-income school districts (calibrated to New York data) with housing stocks that vary within and across districts. The advantage of this approach is that, rather than starting from an abstract and idealized public school system, it allows the analysis to proceed from a base model that replicates the actual stylized facts that emerge from the data - including public school systems with wide inter-district variations of school quality, communities with housing stocks similar to those observed in the data, etc. Furthermore, the data are used to infer specific parameters in behavioral equations, parameters that are consistent with the present state of the world. Policies then unfold in the model under the assumptions that household responses will be consistent with these parameters. Previous analysis conducted with this model has yielded a variety of insights regarding the impact of various public school finance systems, the potential role of peer effects, and the likely role of different types of voucher policies. This analysis with respect to school choice is extended in this paper by considering potential school responses to increased competition as well as deriving testable implications regarding families that differ in income and in the number of children in the household.