Constrained School Choice and the Demand for Effective Schools

Choosing a school is one of the most important decisions parents make with regards to their children's human capital, yet they often face restricted choice sets. We study parental preferences over peer quality and school effectiveness in the centralized education market of Barbados, where admissions are based on a one-shot exam and parents face a binding cap on the number of schools to which they can apply. Exploiting a policy reform that further tightened this cap, we show that parents responded by omitting the most selective schools from their applications, underscoring how market design shapes application behavior. We then estimate parental preferences for school effectiveness measured by impacts on test scores and adult wages as well as peer quality. Preference estimates under the assumption of truth-telling indicate that parents do not value effectiveness after controlling for peer quality. In contrast, preference estimates under the assumption of market stability, which allows for strategic behavior, show that parents place substantial weight on both effectiveness and peer quality. This divergence arises because the most selective schools are also the most effective, forcing parents to trade off effectiveness against admission probabilities.