School Choice and the Flight to Private Schools: To What Extent Are Public and Private Schools Substitutes?

Opponents of school choice sometimes charge that vouchers, charter schools, and tuition tax credits would strip funding and talented students from the public schools. Proponents say this is exactly what is needed to provide extra competition for public schools. Flight to private schools may happen if parents think private schools are good substitutes for public schools. For goods with explicit market prices, economists estimate substitutability by specifying a demand curve and finding a cross price elasticity, but the non-market nature of schooling has prevented this. The current study finds a way to estimate the demand for public schooling and calculate a cross price elasticity by exploiting Rosen’s (1974) two-stage hedonic technique. It estimates the cross price elasticity between public schooling and the price of private schooling to be 0.32: Americans view private schools as fairly weak substitutes for public schools. The use of spatial statistics accounts for potential spillovers and omitted variable bias in the house price hedonics and the demand curve estimation. In fact, the -1.72 price elasticity of demand is much larger than the -0.20 to -0.40 estimates generally found by non-spatial studies.

Which Measures of School Quality Does the Housing Market Value?

This study explores which measures of public school quality the housing market values. Both a traditional hedonic house price estimation and a hedonic corrected for spatial autocorrelation are used. Proficiency tests, expenditure per pupil and the pupil / teacher ratio are consistently capitalized into housing prices. Teacher salary and student attendance rates are also valued, but these results are sensitive to the estimation technique employed. Value-added measures, the graduation rate, teacher experience levels and teacher education levels are not consistently positively related to housing prices, so researchers should probably avoid using them as public education quality measures.

Educational Outcomes and House Values: A Test of the Value-Added Approach

We use house price hedonics to compare the extent that homeowners value traditional measures of school quality or the “value added” of schooling. Unlike other studies, we use spatial statistics as an identification strategy. Based on our study of 310 school districts and 77,000 house transactions, we find little support for the value added model. Instead, we find that households consistently value a district’s average proficiency test scores and expenditures. The elasticity of house prices with respect to school expenditures is 0.49 and an increase in test scores by one standard deviation, ceteris paribus, raises house prices by 7.1%.

The Demand for Educational Quality: Comparing Estimates from a Median Voter Model with those from an Almost Ideal Demand System

Communities differ in both the bundle of amenities offered to residents and the implicit price of these amenities. Thus, households are faced with a choice of which bundle to select when they select their residence. This choice implies households make tradeoffs among the amenities; that is, the amenities are substitutes or complements. We focus on estimating the demand for public school quality. After generating the implicit prices of community amenities from a hedonic house price equation, we use the median voter model and the AIDS model framework for estimating price and income elasticities of demand. The two models yield very similar estimates. The own price elasticity of demand for schooling is about -0.6 with an income elasticity of demand of 0.5. Public safety and school quality are substitutes as are the community’s income level and school quality.

School Choice: Supporters and Opponents

We conduct a phone survey to examine the attitudes of Ohioans about school choice, which includes open enrollment programs, school vouchers, tuition tax credits, and charter schools. Previous studies examine more limited forms of choice and investigate fewer possible influences. We find the strongest opposition for school choice by people with graduate degrees and people who believe their assigned public school district is excellent. In fact, people’s opinions about their public schools are stronger predictors of school choice support than are objective measures of school quality. We find people with children in private schools and people with associate’s degrees to be the strongest supporters. Males tend to oppose choice and blue collar workers support it. We find no role for age, the convenience of alternative schools, or the protection of house values in support for school choice.

Capitalization of Parent, School, and Peer Group Components of School Quality into House Price

We decompose school proficiency test scores into their parent, peer group, and school input components to see which are valued by the housing market. The value-added model proposes that only locationally fixed district-specific factors such as inputs to schooling and the characteristics of student peers are capitalized into house prices. This model claims that portable inputs to student outcomes, such as parental contributions, are not capitalized. A competing model argues that value-added is not easily observed; rather, educational outcomes such as proficiency test scores are easily observed and are capitalized into house prices. Based on our study of 123 school districts and 27,000 house transactions, we find little support for the value-added model. Instead, we find that households value a district’s average proficiency test scores. The primary component of the proficiency test score that is capitalized into house prices is the parental input component. The peer group component is also valued, but less strongly. The school input component is not valued.