‘Neighborhood Schools, Choice, and the Distribution of Educational Benefits’
in Hoxby, C. (ed.), The Economics of School Choice, University of Chicago Press
Models school choice policies in a general equilibrium framework, similar in spirit to the authors' 1998 paper.
The model incorporates peer effects – the possibility that students benefit from learning with more able peers. Parents are willing to pay extra to have their children taught with high-ability peers.
With NO school choice (all students go to their local school), school quality is stratified by neighbourhood. House prices ration access to the best schools, and neighbourhoods stratify by income.
With free school choice and zero transport costs, the result is equal school quality (and equal house prices) in all neighbourhoods.
A voucher which can be topped up by parents yields an equilibrium stratified by both income and ability across schools (but not neighbourhoods).
Higher-income households with lower-ability students will buy their way into private schools by supplementing the voucher.
Higher ability students, whether of high or low income, will be drawn into private schools with tuition subsidies provided by schools on top of the voucher.
