TY  - JOUR
AU  - MacLeod,W. Bentley
AU  - Urquiola,Miguel
TI  - Anti-Lemons: School Reputation and Educational Quality
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15112
PY  - 2009
Y2  - June 2009
UR  - http://www.nber.org/papers/w15112
L1  - http://www.nber.org/papers/w15112.pdf
N1  - Author contact info:
W. Bentley MacLeod
Department of Economics
Columbia University
420 West 118th Street, MC 3308
New York, NY 10027
Tel: 310-571-5083
Fax: 212/854-4782
E-Mail: bentley.macleod@columbia.edu

Miguel Urquiola
Columbia University
SIPA and Economics Department
1022 IAB, MC 3308
420 West 118th Street
New York, NY 10027
Tel: 212/854-3769
Fax: 212/854-8059
E-Mail: msu2101@columbia.edu
AB  - Friedman (1962) argued that a free market in which schools compete based upon their reputation would lead to an efficient supply of educational services. This paper explores this issue by building a tractable model in which rational individuals go to school and accumulate skill valued in a perfectly competitive labor market. To this it adds one ingredient: school reputation in the spirit of Holmstrom (1982). The first result is that if schools cannot select students based upon their ability, then a free market is indeed efficient and encourages entry by high productivity schools. However, if schools are allowed to select on ability, then competition leads to stratification by parental income, increased transmission of income inequality, and reduced student effort---in some cases lowering the accumulation of skill. The model accounts for several (sometimes puzzling) findings in the educational literature, and implies that national standardized testing can play a key role in enhancing learning.
ER  -