IDEAS home Printed from https://ideas.repec.org/p/pri/indrel/645.html
   My bibliography  Save this paper

The Equilibrium Effects of Public Provision in Education Markets: Evidence from a Public School Expansion Policy

Author

Listed:
  • Christopher Neilson

    (Princeton University)

  • Michael Dinerstein

    (University of Chicago)

  • Sebastián Otero

    (Stanford University)

Abstract

In markets with private options, the optimal level of public provision may require balancing a tradeoff between reducing private options’ market power with the possibility of crowding out potentially high-quality products. These considerations are particularly relevant in many developing countries’ education systems where state capacity is increasing but low levels of past public provision mean many private schools already exist. We study the equilibrium effects of public provision in the context of a large expansion of public schools in the Dominican Republic. Over a five-year period, the government aimed to increase the number of public school classrooms by 78%. Using an event study framework, we estimate the effect of a new public school on neighborhood outcomes and competing private schools, where we instrument for how quickly the public school construction project finished with the characteristics of the contractor randomly assigned to build the project. We find that a new public school increased public sector enrollment significantly. As public enrollment increased, a large number of private schools closed while the surviving schools lowered prices and increased school quality. To study how the level of public provision affects the overall level of quality in the market, we specify and estimate an empirical model of demand (students choosing schools) and supply (schools choosing whether to enter, stay open and what price to charge). We use the model estimates to calculate the level of public provision that maximizes learning. Due to equilibrium competitive effects, we find that the optimal level is non-monotonic in the quality of the increased public schooling.

Suggested Citation

  • Christopher Neilson & Michael Dinerstein & Sebastián Otero, 2020. "The Equilibrium Effects of Public Provision in Education Markets: Evidence from a Public School Expansion Policy," Working Papers 645, Princeton University, Department of Economics, Industrial Relations Section..
  • Handle: RePEc:pri:indrel:645
    as

    Download full text from publisher

    File URL: https://dataspace.princeton.edu/bitstream/88435/dsp0170795b707/3/645.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David Card & Martin D. Dooley & A. Abigail Payne, 2010. "School Competition and Efficiency with Publicly Funded Catholic Schools," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 150-176, October.
    2. Caroline Minter Hoxby, 2003. "School Choice and School Productivity. Could School Choice Be a Tide that Lifts All Boats?," NBER Chapters, in: The Economics of School Choice, pages 287-342, National Bureau of Economic Research, Inc.
    3. Matias Busso & Sebastian Galiani, 2019. "The Causal Effect of Competition on Prices and Quality: Evidence from a Field Experiment," American Economic Journal: Applied Economics, American Economic Association, vol. 11(1), pages 33-56, January.
    4. Harounan Kazianga & Dan Levy & Leigh L. Linden & Matt Sloan, 2013. "The Effects of "Girl-Friendly" Schools: Evidence from the BRIGHT School Construction Program in Burkina Faso," American Economic Journal: Applied Economics, American Economic Association, vol. 5(3), pages 41-62, July.
    5. Esther Duflo, 2001. "Schooling and Labor Market Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment," American Economic Review, American Economic Association, vol. 91(4), pages 795-813, September.
    6. Epple, Dennis & Figlio, David & Romano, Richard, 2004. "Competition between private and public schools: testing stratification and pricing predictions," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1215-1245, July.
    7. Bau, Natalie, 2019. "Estimating an Equilibrium Model of Horizontal Competition in Education," CEPR Discussion Papers 13924, C.E.P.R. Discussion Papers.
    8. Michael Dinerstein & Rigissa Megalokonomou & Constantine Yannelis, 2020. "Human Capital Depreciation," NBER Working Papers 27925, National Bureau of Economic Research, Inc.
    9. Steven Berry & James Levinsohn & Ariel Pakes, 2004. "Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 68-105, February.
    10. Mauricio Romero & Justin Sandefur & Wayne Aaron Sandholtz, 2020. "Outsourcing Education: Experimental Evidence from Liberia," American Economic Review, American Economic Association, vol. 110(2), pages 364-400, February.
    11. Fernanda Estevan, 2015. "Public education expenditures and private school enrollment," Canadian Journal of Economics, Canadian Economics Association, vol. 48(2), pages 561-584, May.
    12. McMillan, Robert, 2005. "Erratum to "Competition, incentives, and public school productivity"," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1133-1154, June.
    13. Joshua Angrist & Eric Bettinger & Erik Bloom & Elizabeth King & Michael Kremer, 2002. "Vouchers for Private Schooling in Colombia: Evidence from a Randomized Natural Experiment," American Economic Review, American Economic Association, vol. 92(5), pages 1535-1558, December.
    14. Caroline M. Hoxby, 2001. "All School Finance Equalizations are Not Created Equal," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1189-1231.
    15. Caroline Minter Hoxby, 1994. "Do Private Schools Provide Competition for Public Schools?," NBER Working Papers 4978, National Bureau of Economic Research, Inc.
    16. Jeffrey Clemens & Joshua D. Gottlieb, 2017. "In the Shadow of a Giant: Medicare’s Influence on Private Physician Payments," Journal of Political Economy, University of Chicago Press, vol. 125(1), pages 1-39.
    17. Liyang Sun & Sarah Abraham, 2018. "Estimating Dynamic Treatment Effects in Event Studies with Heterogeneous Treatment Effects," Papers 1804.05785, arXiv.org, revised Sep 2020.
    18. Dana Burde & Leigh L. Linden, 2013. "Bringing Education to Afghan Girls: A Randomized Controlled Trial of Village-Based Schools," American Economic Journal: Applied Economics, American Economic Association, vol. 5(3), pages 27-40, July.
    19. Abhijit Banerjee & Rema Hanna & Jordan Kyle & Benjamin A. Olken & Sudarno Sumarto, 2019. "Private Outsourcing and Competition: Subsidized Food Distribution in Indonesia," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 101-137.
    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. Michael Dinerstein & Troy Smith, 2015. "Quantifying the Supply Response of Private Schools to Public Policies," Discussion Papers 15-019, Stanford Institute for Economic Policy Research.
    22. repec:mpr:mprres:7836 is not listed on IDEAS
    23. Downes, Thomas A. & Schoeman, David, 1998. "School Finance Reform and Private School Enrollment: Evidence from California," Journal of Urban Economics, Elsevier, vol. 43(3), pages 418-443, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fertig, Michael, 2003. "Educational Production, Endogenous Peer Group Formation and Class Composition - Evidence From the PISA 2000 Study," RWI Discussion Papers 2, RWI - Leibniz-Institut für Wirtschaftsforschung.
    2. James J. Heckman & Dimitriy V. Masterov, 2007. "The Productivity Argument for Investing in Young Children ," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 29(3), pages 446-493.
    3. Constant, Amelie F. & Konstantopoulos, Spyros, 2002. "School Effects and Labor Market Outcomes for Young Adults in the 1980s and 1990s," IZA Discussion Papers 671, Institute of Labor Economics (IZA).
    4. Ariga, Kenn & Brunello, Giorgio & Iwahashi, Roki & Rocco, Lorenzo, 2006. "On the Efficiency Costs of De-tracking Secondary Schools," IZA Discussion Papers 2534, Institute of Labor Economics (IZA).
    5. Paul Beaudry & Thomas Lemieux & Daniel Parent, 2000. "What is Happening in the Youth Labour Market in Canada?," Canadian Public Policy, University of Toronto Press, vol. 26(s1), pages 59-83, July.
    6. Jorge Durán & Alexandra Rillaers, 2002. "Physical And Human Capital Investment: Relative Substitutes In The Endogenous Growth Process," Working Papers. Serie AD 2002-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    7. Brunello, Giorgio & Checchi, Daniele, 2005. "School quality and family background in Italy," Economics of Education Review, Elsevier, vol. 24(5), pages 563-577, October.
    8. Klaus Waelde, 1996. "Lifetime learning, biased technological change and the evolution of wages in the U.S. 1960 - 1990," Labor and Demography 9601001, University Library of Munich, Germany.
    9. Juan Pablo Atal & Jose Ignacio Cuesta & Felipe Gonzalez & Cristobal Otero, 2021. "The Economics of the Public Option:Evidence from Local Pharmaceutical Markets," PIER Working Paper Archive 21-012, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    10. Lars Nesheim, 2002. "Equilibrium sorting of heterogeneous consumers across locations: theory and empirical implications," CeMMAP working papers CWP08/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    11. Juan Pablo Atala & José Ignacio Cuesta & Felipe González & Cristóbal Otero, 2021. "The Economics of the Public Option: Evidence from Local Pharmaceutical Markets," Documentos de Trabajo 561, Instituto de Economia. Pontificia Universidad Católica de Chile..

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Friesen, Jane & Harris, Benjamin Cerf & Woodcock, Simon, 2013. "Open Enrolment and Student Achievement," CLSSRN working papers clsrn_admin-2013-46, Vancouver School of Economics, revised 22 Mar 2014.
    2. Harounan Kazianga & Leigh Linden & Ali Protik & Matt Sloan, 2015. "Impact Evaluation of Burkina Faso's BRIGHT Program: Design Report," Mathematica Policy Research Reports c0250cd3f27d448ea70d909c3, Mathematica Policy Research.
    3. Marine de Talance, 2017. "Quality Perceptions and School Choice in Rural Pakistan," Working Papers hal-01663029, HAL.
    4. Karthik Muralidharan & Nishith Prakash, 2017. "Cycling to School: Increasing Secondary School Enrollment for Girls in India," American Economic Journal: Applied Economics, American Economic Association, vol. 9(3), pages 321-350, July.
    5. Chakrabarti, Rajashri, 2013. "Do vouchers lead to sorting under random private school selection? Evidence from the Milwaukee voucher program," Economics of Education Review, Elsevier, vol. 34(C), pages 191-218.
    6. Gallego Francisco, 2013. "When Does Inter-School Competition Matter? Evidence from the Chilean “Voucher” System," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 525-562, August.
    7. Dennis Epple & Richard E. Romano & Miguel Urquiola, 2017. "School Vouchers: A Survey of the Economics Literature," Journal of Economic Literature, American Economic Association, vol. 55(2), pages 441-492, June.
    8. Pedro Carneiro & Jishnu Das & Hugo Reis, 2016. "The value of private schools: evidence from Pakistan," CeMMAP working papers CWP22/16, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    9. Besley, Timothy & Malcomson, James M., 2018. "Competition in public service provision: The role of not-for-profit providers," Journal of Public Economics, Elsevier, vol. 162(C), pages 158-172.
    10. de Haan, Monique & Leuven, Edwin & Oosterbeek, Hessel, 2011. "Scale economies can offset the benefits of competition: Evidence from a school consolidation reform in a universal voucher system," CEPR Discussion Papers 8272, C.E.P.R. Discussion Papers.
    11. Uzma Ahmad & Steven McIntosh & Gurleen Popli, 2019. "Selection and Performance in Post-Compulsory Education," Working Papers 2019014, The University of Sheffield, Department of Economics.
    12. Seidel, André, 2019. "A global map of amenities: Public goods, ethnic divisions and decentralization," Working Papers in Economics 5/19, University of Bergen, Department of Economics.
    13. Barrera-Osorio,Felipe & Blakeslee,David S. & Hoover,Matthew & Linden,Leigh & Raju,Dhushyanth & Ryan,Stephen P., 2017. "Delivering education to the underserved through a public-private partnership program in Pakistan," Policy Research Working Paper Series 8177, The World Bank.
    14. Harounan Kazianga & Leigh Linden & Ali Protik & Matt Sloan, 2016. "The Medium-Term Impacts of Girl-Friendly Schools: Seven-Year Evidence from School Construction in Burkina Faso," Development Working Papers 406, Centro Studi Luca d'Agliano, University of Milano, revised 11 Nov 2016.
    15. Marian Meller & Stephan Litschig, 2016. "Adapting the Supply of Education to the Needs of Girls: Evidence from a Policy Experiment in Rural India," Journal of Human Resources, University of Wisconsin Press, vol. 51(3), pages 760-802.
    16. Thomas J. Nechyba, 2003. "Centralization, Fiscal Federalism, and Private School Attendance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 179-204, February.
    17. ANDRÉ Pierre & DEMONSANT Jean-Luc, 2012. "Koranic Schools in Senegal: A real barrier to formal education?," LISER Working Paper Series 2012-34, LISER.
    18. Fazzio, Ila & Eble, Alex & Lumsdaine, Robin L. & Boone, Peter & Bouy, Baboucarr & Hsieh, Pei-Tseng Jenny & Jayanty, Chitra & Johnson, Simon & Silva, Ana Filipa, 2021. "Large learning gains in pockets of extreme poverty: Experimental evidence from Guinea Bissau," Journal of Public Economics, Elsevier, vol. 199(C).
    19. Miguel Urquiola, 2015. "Progress and challenges in achieving an evidence-based education policy in Latin America and the Caribbean," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 24(1), pages 1-30, December.
    20. Chang-Tai Hsieh & Miguel Urquiola, 2002. "When Schools Compete, How Do They Compete? An Assessment of Chile's Nationwide School Voucher Program," Working Papers 123, Princeton University, Department of Economics, Center for Economic Policy Studies..

    More about this item

    Keywords

    Dominican Republic;

    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pri:indrel:645. 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: . General contact details of provider: https://edirc.repec.org/data/irprius.html .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bobray Bordelon (email available below). General contact details of provider: https://edirc.repec.org/data/irprius.html .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.