Estimating the Effects of Private School Vouchers in Multidistrict Economies

This paper estimates a general equilibrium model of school quality and household residential and school choice for economies with multiple public school districts and private (religious and nonsectarian) schools. The estimates, obtained through full-solution methods, are used to simulate two large-scale private school voucher programs in the Chicago metropolitan area: universal vouchers and vouchers restricted to nonsectarian schools. In the simulations, both programs increase private school enrollment and affect household residential choice. Under nonsectarian vouchers, however, private school enrollment expands less than under universal vouchers, and religious school enrollment declines for large nonsectarian vouchers. Fewer households benefit from nonsectarian vouchers

Contracting For Educational Achievement

We argue that the lack of academic proficiency in K-12 education is due to information asymmetry between the policy-maker, households and schools. The policy-maker is thus unable to write down contracts that ensure proficiency, and must incur agency costs which, in turn, generate other distortions. We develop a theoretical equilibrium model where schools and households choose their efforts in response to the policy-maker’s incentives. We model public schools as one possible response to informational failures. Unlike private schools, public schools separate the roles of financing and consuming education, thus creating rents for public schools. We develop a computational version of the model that allows us to illustrate the distortions and effects from alternative contracts

School finance reform: Assessing general equilibrium effects

In 1994 the state of Michigan implemented one of the most comprehensive school finance reforms undertaken to date in any of the states. Understanding the effects of the reform is thus of value in informing other potential reform initiatives. In addition, the reform and associated changes in the economic environment provide an opportunity to assess whether a simple general equilibrium model can be of value in framing the study of such reform initiatives. In this paper, we present and use such a model to derive predictions about the effects of the reform on housing prices and neighborhood demographic compositions. Broadly, our analysis implies that the effects of the reform and changes in the economic environment are likely to have been reflected primarily in housing prices and only modestly on neighborhood demographics. We find that evidence for the Detroit metropolitan area from the decade encompassing the reform is largely consistent with the predictions of the model.</p

Learning About New Products: An Empirical Study of Physicians' Behavior

We develop and estimate a model of market demand for a new pharmaceutical, whose quality is learned through prescriptions by forward-looking physicians. We use a panel of anti-ulcer prescriptions from Italian physicians between 1990 and 1992 and focus on a new molecule available since 1990. We solve the model by calculating physicians' optimal decision rules as functions of their beliefs about the new pharmaceutical. According to our counterfactuals, physicians' initial pessimism and uncertainty can have large, negative effects on their propensity to prescribe the new drug and on expected health outcomes. In contrast, subsidizing the new good can mitigate informational losses

Information asymmetry and equilibrium monitoring in education

We develop a theoretical and computational model of school choice and achievement that embeds information asymmetries in the provision of education. Because school effort is unobservable to households and policymakers, schools have an incentive to under provide effort. This moral hazard affects both public and private schools, although public schools are subject to an additional distortion because of limited competition and fixed funding. Household monitoring of schools can mitigate moral hazard, but some households may free-ride on the monitoring of others. Using our calibrated model we simulate two policies aimed at raising achievement: public monitoring of public schools and private school vouchers. Our results indicate that in large scale settings no single tool may suffice. The reason is twofold: a) no tool raises achievement or welfare for all households; and b) since the extent of moral hazard is endogenous, the application of each tool has unintended consequences that limit its own effectiveness. Results also indicate that setting the policy parameters for public schools at the levels preferred by the majority of households may mitigate the distortions. Nonetheless, the current actual values of these parameters seem to match more closely the preferences of public schools than the preferences of parents.</p