Class Size and Sorting in Market Equilibrium: Theory and Evidence

This paper examines how schools choose class size and how households sort in response to those choices. Focusing on the highly liberalized Chilean education market, we develop a model in which schools are heterogeneous in an underlying productivity parameter, class size is a component of school quality, households are heterogeneous in income and hence willingness to pay for school quality, and schools are subject to a class-size cap. The model offers an explanation for two distinct empirical patterns observed among private schools that accept government vouchers: (i) There is an inverted-U relationship between class size and household income in equilibrium, which will tend to bias cross-sectional estimates of the effect of class size on student performance. (ii) Some schools at the class size cap adjust prices (or enrollments) to avoid adding another classroom, which produces stacking at enrollments that are multiples of the class size cap. This generates discontinuities in the relationship between enrollment and household characteristics at those points, violating the assumptions underlying regression-discontinuity (RD) research designs. This result suggests that caution is warranted in applying the RD approach in settings in which parents have substantial school choice and schools are free to set prices and influence their enrollments.

School Markets: The Impact of Information Approximating Schools' Effectiveness

The impact of competition on academic outcomes is likely to depend on whether parents are informed about schools' effectiveness or valued added (which may or may not be correlated with absolute measures of their quality), and on whether this information influences their school choices, thereby affecting schools' market outcomes. To explore these issues, this paper considers Chile's SNED program, which seeks to identify effective schools, selecting them from within "homogeneous groups" of arguably comparable institutions. Its results are widely disseminated, and the information it generates is quite different from that conveyed by a simple test-based ranking of schools (which in Chile, turns out to largely resemble a ranking based on socioeconomic status). We rely on a sharp regression discontinuity to estimate the effect that being identified as a SNED winner has on schools’ enrollment, tuition levels, and socioeconomic composition. Through five applications of the program, we find no consistent evidence that winning a SNED award affects these outcomes. This suggests that information on school effectiveness -- at least as it is calculated and delivered by the SNED -- might not much affect school markets.

Capitalization, Regulation and the Poor: Access to Basic Services in Bolivia

Privatization, Regulation, Utilities, Poverty

Capitalization and Privatization in Bolivia: An Aproximation to an Evaluation

The paper describes the privatization process in Bolivia, placing emphasis on the particularities of the capitalization mechanism that was used for this purpose, and the regulatory framework introduced as its essential complement. With this background, the paper then details the changes in the industrial organization and ownership patterns in the electricity, oil and gas, telecommunications, transportation, and water industries. The discussion then turns to these processes’ economic and social consequences. In the first case, the key issues are which agents benefited from the transfer of assets, and the effects on firm-level variables like investment, profitability, and transfers to the State. With regards to social outcomes, we focus on the effects on employees and consumers. For the first, interest centers on what happened to employment and wages in the sectors affected; for the second, what occurred to access and prices for privatized utilities, and to welfare more generally. This paper touches on all these issues, although in several cases a full treatment is not possible due to data limitations.Privatization; Regulation; Economic Impact

When Schools Compete, How Do They Compete? An Assessment of Chile’s Nationwide School Voucher Program

The notion that free choice is welfare-enhancing is one of the foundations of modern, market-oriented societies. This view is prominent in the school choice debate, where there is a widespread perception that public schools are inecientlocal monopolies, and that the quality of education would improve dramatically if only parents were allowed to freely choose between schools. For example, in recent work Hoxby (2001) asks \what is the range of productivity over which choice could cause productivity to vary? Recent history suggests that school productivity could be much higher than it is now - 60 to 70 percent higher." Two arguments underlie the view that choice would improve the quality of education. First, there is a widely-held belief that private schools are better than public schools. Al- though most research on this is hampered by selection issues, recent work that exploits quasi-experiments with vouchers nd some evidence that children benet from attending private schools.1 The implication is that unrestricted choice could raise students' achieve- ment merely by facilitating their transfer to the private sector. A second, perhaps even more compelling argument for choice comes from our instinct that people and organizations respond to incentives. Therefore, by correctly aligning the incentives public schools face, choice would force their ossied bureaucracies to improve.

When Schools Compete, How Do They Compete? An Assessment of Chile's Nationwide School Voucher Program

In 1981, Chile introduced nationwide school choice by providing vouchers to any student wishing to attend private school. As a result, more than 1,000 private schools entered the market, and the private enrollment rate increased by 20 percentage points, with greater impacts in larger, more urban, and wealthier communities. We use this differential impact to measure the effects of unrestricted choice on educational outcomes. Using panel data for about 150 municipalities, we find no evidence that choice improved average educational outcomes as measured by test scores, repetition rates, and years of schooling. However, we find evidence that the voucher program led to increased sorting, as the best' public school students left for the private sector.

Bolivian capitalization and privatization: Approximation to an evaluation

The wave of privatizations Latin America experienced during the 1990s was integral to stabilization programs and a general reordering of states’ roles in the regional economy. Over the past few years, however, these privatizations have come under increasing fire. Their purported adverse effects range from higher utility prices to aggravating—or even causing—the current regional recession. In short, privatization shares in the criticism directed at the entire liberalization process. Within this context, accurate knowledge of privatization’s real consequences can be of considerable value. While research has been conducted on certain economic effects, less is known about privatization’s broader social consequences. This chapter attempts to fill some of those gaps as they concern Bolivia.Privatization; Industrial Organization and Regulation; Firm Performance; Consumer Welfare; Political Economy