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Upping the Ante: The Equilibrium Effects of Unconditional Grants to Private Schools

Author

Listed:
  • Andrabi, Tahir

    (Pomona College)

  • Das, Jishnu

    (World Bank)

  • Khwaja, Asim Ijaz

    (Harvard U)

  • Ozyurt, Selcuk

    (Sabanci U)

  • Singh, Niharika

    (Harvard U)

Abstract

We test for financial constraints as a market failure in education in a low-income country by experimentally allocating unconditional cash grants to either one (L) or to all (H) private schools in a village. Enrollment increases in both treatments, accompanied by infrastructure investments. However, test scores and fees only increase in H along with higher teacher wages. This differential impact follows from a canonical oligopoly model with capacity constraints and endogenous quality: greater financial saturation crowds-in quality investments. Higher social surplus in H, but greater private returns in L underscores the importance of leveraging market structure in designing educational subsidies.

Suggested Citation

  • Andrabi, Tahir & Das, Jishnu & Khwaja, Asim Ijaz & Ozyurt, Selcuk & Singh, Niharika, 2018. "Upping the Ante: The Equilibrium Effects of Unconditional Grants to Private Schools," Working Paper Series rwp18-019, Harvard University, John F. Kennedy School of Government.
  • Handle: RePEc:ecl:harjfk:rwp18-019
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    References listed on IDEAS

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    JEL classification:

    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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