School competition is widely presented as a model for improving educational outcomes. Ongoing debates on school vouchers, charter schools and the role of private education show an increased focus on the use of market forces in the education sector. Bau's "School Competition and Product Differentiation" takes a slightly different approach, instead of the 'traditional' comparison between public and private schools, she looks into the effect of competition within the private sector.
Abstract
"Policies that encourage school competition in hopes
of improving school quality are increasingly popular in both rich and poor countries. In
this paper, I establish that schools may respond to increased competition by catering to
wealthier students, at the expense of poorer students. I develop a model of school competition
in the presence of differential information.
If (1) the match between a school and a student affects learning, and (2) wealthier students' enrollment decisions are more responsive to their
match to schools, then schools cater more to the needs of wealthy students. Therefore, the
entry of an additional school can reduce the quality of the match for poorer students. I show
that the key mechanism of the theoretical model - that wealthier student are more responsive
to their predicted test score gains when choosing schools - is consistent with the data by
estimating a structural model of school choice in Pakistan. Exploiting the exit and entry of
private schools and an instrumental variable that affects the cost of opening a private school, I find that competition increases private schools' targeting of wealthy students and reduces their
targeting of poor students. An additional private school in the market increases within-school
inequality in yearly test score gains by 0.1 standard deviations."
Many arguments promoting school competition are framed as pro-poor (elitist arguments are bad form these days), however the study shows that there might be diminishing returns and actually reduce learning for already enrolled poor students. Unfortunately the author does not follow up on one stark implication: the increased focus on wealthier students when the competition rises (as indicated in her own model). Therefore the issue does not seem to be informational (poor students choices are a worse match) as stated, but rather the schools own focus. These two issues might need to be disentangled further.
An interesting note, especially for fans of path-dependence, is that the presence of private schools is correlated to girls' government secondary school in the village (promoted mainly in 1980s through the Pakistan Social Action Program). Secondary-school educated young women are a key labor source for private school teaching, bringing on board another variable for education policy and territorial coverage of competition.
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