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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
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    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. Michael Dinerstein & Troy D. Smith, 2021. "Quantifying the Supply Response of Private Schools to Public Policies," American Economic Review, American Economic Association, vol. 111(10), pages 3376-3417, October.
    3. 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.
    4. 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).
    5. 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).
    6. 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.
    7. 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).
    8. Harshil Sahai & Michael Bailey, 2022. "Social Networks and Spatial Mobility: Evidence from Facebook in India," Papers 2203.05595, arXiv.org.
    9. Brunello, Giorgio & Checchi, Daniele, 2005. "School quality and family background in Italy," Economics of Education Review, Elsevier, vol. 24(5), pages 563-577, October.
    10. 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.
    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..
    12. 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.

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    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

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