NBER Reporter: Summer 2001

The Economics of School Choice

An NBER Conference on "The Economics of School Choice," organized by Caroline M. Hoxby, Director of the NBER's Program on the Economics of Education, also of Harvard University, took place on February 22-24. The following papers and discussion made up the agenda:

Eric A. Hanushek, NBER and Stanford University, and Steven G. Rivkin, Amherst College, "Does Public School Competition Affect Teacher Quality?"

Discussant: Joseph Altonji, NBER and Northwestern University

Paul E. Peterson, William G. Howell, Patrick J. Wolff, and David E. Campbell, Harvard University, "School Vouchers: Results from Randomized Experiments"

Discussant: Derek Neal, NBER and University of Wisconsin

Thomas Nechyba, NBER and Duke University, "Introducing School Choice into Multi-District Public School Districts"

Discussant: Charles Manski, NBER and Northwestern University

Caroline M. Hoxby, "School Choice and School Productivity"

Discussant: John Chubb, Edison Schools

Raquel Fernandez, NBER and New York University, and Richard Rogerson, NBER and University of Pennsylvania, "Vouchers: A Dynamic Analysis"

Discussant: Ananth Seshadri, University of Wisconsin, Madison

David Figlio, NBER and University of Florida, and Marianne Page, University of California, Davis, "Can School Choice and School Accountability Successfully Coexist?"

Discussant: Helen Ladd, Duke University

Julie Berry Cullen, NBER and University of Michigan, and Steven G. Rivkin, "The Role of Special Education in School Choice"

Discussant: Richard Murnane, NBER and Harvard University

Dennis N. Epple, NBER and Carnegie Mellon University, and Richard E. Romano, University of Florida, "Neighborhood Schools, Choice and the Distribution of Educational Benefits"

Discussant: Michael Kremer, NBER and Harvard University

Tom Kane, NBER and Harvard University, Jane Hannaway, The Urban Institute, and Chester Finn, The Fordham Foundation,

Panel Discussion: The Uses and Abuses of Research on School Choice in the Policy Debate

Under most conceivable scenarios of expanded choice, even with private school vouchers, the public school system will still remain the majority supplier of schooling. Therefore, it is important to know what might happen to quality and outcomes in the remaining public schools. Hanushek and Rivkin first compare estimates of differences in average school quality in metropolitan areas across Texas to the amount of public school competition in each district. At least for the largest metropolitan areas, the degree of competition is related positively to performance of the public schools. Then they investigate the narrower impact of metropolitan area competition on teacher quality. Because teacher quality has been identified as one of the most important determinants of student outcomes, the effects of competition on hiring, retention, monitoring, and other personnel practices may be one of the most important aspects of any force toward improving public school quality. The results, while far from conclusive, suggest that competition raises teacher quality and improves the overall quality of education.

Based on three randomized experiments in New York City, Washington D.C., and Dayton, Ohio, Peterson and his co-authors find that African-American students attending private schools perform an average of 6 national percentile points higher on tests of reading and math achievement after two years than members of a control group remaining in public school. Parents of students in private schools report higher levels of satisfaction, fewer discipline problems, more communication with school, and more student homework than parents in the control group. Participating families are of low-income; the number of cases in each site varies between several hundred and two thousand.

Nechyba seeks to shed light on how school choice policies change the opportunities faced by different types of households and their children. His simulations are derived from a three-district model of low, middle, and high-income school districts (calibrated to New York data) with housing stocks that vary within and across districts. The advantage of this approach is that, rather than starting from an abstract and idealized public school system, it allows the analysis to proceed from a base model that replicates the actual stylized facts that emerge from the data, including public school systems with wide inter-district variations of school quality, communities with housing stocks similar to those observed in the data, and so on. The analysis with respect to school choice is extended in this paper by including consideration of potential school responses to increased competition and by deriving testable and policy implications.

Existing research on school choice has neglected school productivity, yet the effects of competition on productivity may be large enough to swamp any adverse effects that even the least lucky students experience under choice. In this paper, Hoxby shows that as recently as 1970, American public schools' productivity was at least 50 percent higher than it is today. She describes the economic theory that suggests that choice would improve productivity. She then presents empirical evidence on how choice affects school productivity and student achievement, focusing on the effect of recent reforms in Milwaukee, Michigan, and Arizona. Achievement and productivity in public schools increased strongly in response to significant competition from vouchers and charter schools.

Fernandez and Rogerson model family decisionmaking in order to analyze the short-run and long-run effects of various voucher programs. They assume that educational services are provided efficiently, and that parents cannot borrow against a child's future income in order to finance current expenditures on education. In this setting, vouchers have the potential to raise aggregate welfare by allowing poor families to increase their expenditures on education. The authors consider three different types of voucher programs. In the first, everyone receives a voucher of equal value; in the second, only individuals below a certain threshold income receive a voucher. In the third program, the size of the voucher depends on both parents' income and the amount of their private educational expenditures. The authors find that large gains can be realized through implementation of a voucher system. For example, aggregate income of the economy could be increased by more than 5 percent using moderate-sized vouchers.

Several proposals for school voucher systems, including the program currently in place in Florida, tie voucher eligibility to a school's performance on standardized examinations. Figlio and Page consider the question of whether integrating school choice within a system of school accountability is compatible with the goals underlying school choice programs. A traditional justification for vouchers is to provide schooling options for those whose choices are constrained. Using micro-data from Florida, the authors find that when schools are assessed on the basis of average test performance, the students who are eligible for vouchers are overwhelmingly minority or low-income (though less so than if vouchers were directly targeted to low-income households). When value-added test score measures (for example, year-to-year changes in test scores within a group) are used to assess schools and determine voucher eligibility, voucher-eligible students are more representative of the general population. This is particularly true when schools are small. The authors conclude that tying school vouchers to a school accountability system will not serve the set of students for whom vouchers are intended as well as a school program that is separate from an accountability system.

Proponents of school choice claim that all students, both those who take advantage of choice and those who remain in their neighborhood schools, will benefit because schools will be forced to improve in response to competitive pressures. Others fear that only the most advantaged and informed students will opt out to better schools, leaving the more disadvantaged students isolated in the worst schools with declining resources. Among the students who may be left behind are special needs students. Students with disabilities are most costly to educate and therefore may encounter explicit or implicit barriers to attending choice schools. High concentrations of special needs students also may be a "push" factor for other students deciding on schooling options. Cullen and Rivkin explore how these forces operate under a variety of choice programs. The impact of expanded school choice on special education students and programs will depend on the interaction between the legal responsibilities of the institutions involved and the method of finance. The authors describe how these aspects of the special education landscape differ across public schools, charter schools, and private schools. They also review existing evidence on the relative participation of special needs students across choice systems and provide new evidence using student-level longitudinal data from both Texas and Chicago public schools. It appears that any effects of school choice on disabled students' opportunities will depend on the system. Thus, whether other disadvantaged groups are left behind by school choice also will depend critically on the details of the program.

School districts in the United States typically have multiple schools, centralized finance, and student assignment determined by neighborhood of residence. In many states, centralization is extending beyond the district level as states assume an increasing role in the finance of education. At the same time, movement toward increased pubic school choice, particularly in large urban districts, is growing rapidly. Models that focus on community-level differences in tax and expenditure policy as the driving force in determination of residential choice, school peer groups, and political outcomes are not adequate for analyzing multi-school districts and for understanding changing education policies. Epple and Romano develop a model of neighborhood formation and tax-expenditure policies in neighborhood school systems with centralized finance. In equilibrium, stratification across neighborhoods and their schools is likely to arise. The authors characterize the consequences of intra-district choice with and without frictions, including its effects on the allocation of students across schools, tax and expenditure levels, student achievement, and household welfare.

These papers will be published by the University of Chicago Press in an NBER conference volume. Its availability will be announced in a future issue of the NBER Reporter. They will also be available at Books in Progress.

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