Information Asymmetry and Equilibrium Monitoring in Education
We develop a theoretical and computational model of equilibrium school choice and achievement that embeds information asymmetries in the production of education. School effort is unobservable to households and the policy-maker, leading to moral hazard problems. Although households can monitor school effort, they differ in their ability to do so. Since private schools attract high-ability households, both competition and parental monitoring serve to mitigate (but not eliminate) the under-provision of private school effort. In contrast, the public school attracts low-ability households who free-ride in providing monitoring effort. Lower monitoring and monopoly power induce the public school to under-provide effort. Using our calibrated model, we simulate public monitoring of public schools and private school vouchers. While public monitoring in our simulations increases public school effort and attendance, it can also crowd out private monitoring and hence undermine its own effectiveness. In our simulations, vouchers do not benefit low-income, low-ability households because the monitoring they would need to exercise in private schools is prohibitively costly for them. These findings suggest that since neither monitoring-based policies (such as public school accountability) nor choice-based policies (such as vouchers) eliminate the informational asymmetries that lie at the root of underachievement, an effective program may require a combination of both types of tools rather than reliance on any of them alone.
|Date of creation:||2010|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Dennis Epple & David Figlio & Richard Romano, 2000. "Competition Between Private and Public Schools: Testing Stratification and Pricing Predictions," NBER Working Papers 7956, National Bureau of Economic Research, Inc.
- William Blankenau & Gabriele Camera, 2009. "Public Spending on Education and the Incentives for Student Achievement," Economica, London School of Economics and Political Science, vol. 76(303), pages 505-527, 07.
- Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
- Patrick Legros & Steven A. Matthews, 1993. "Efficient and Nearly-Efficient Partnerships," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 599-611.
- Patrick Legros & Steven A. Matthews, 1992. "Efficient and Nearly Efficient Partnerships," Discussion Papers 991R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Patrick Legros & Steven Matthews, 1993. "Efficient and nearly efficient partnerships," ULB Institutional Repository 2013/7040, ULB -- Universite Libre de Bruxelles.
- Huddart, Steven & Liang, Pierre Jinghong, 2005. "Profit sharing and monitoring in partnerships," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 153-187, December.
- Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
- Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- MacLeod, Bentley, 2009. "Anti-Lemons: School Reputation and Educational Quality," Department of Economics, Working Paper Series qt3rc708kd, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- W. Bentley MacLeod & Miguel Urquiola, 2009. "Anti-Lemons: School Reputation and Educational Quality," NBER Working Papers 15112, National Bureau of Economic Research, Inc.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
- Maria Marta Ferreyra, 2007. "Estimating the Effects of Private School Vouchers in Multidistrict Economies," American Economic Review, American Economic Association, vol. 97(3), pages 789-817, June.
- Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
- Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:red:sed010:1215. 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: (Christian Zimmermann)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.