By Dewatripont M., Hansen L.P., Turnovsky S.J. (eds.)
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Extra info for Advances in economics and econometrics, vol. 2
The solution to private schools j’s maximization problem is characterized by a ﬁrst-order condition that, for an interior solution for that student type, equates the effective marginal cost of admitting the additional student i of type (bi , yi ) to its reservation price. Note that when a school admits a student with ability bi , its quality changes by (bi − q j )/N j . 47 The reservation price of a particular type of student is given by the maximum price pi∗ the school can charge (given its quality) so as to leave the individual at her or his market utility.
Comparing across steady states of a local system relative to a state system of ﬁnancing education, we ﬁnd that, given an individual’s income, each individual prefers a local system to a state system. However, an individual’s income is of course not the same across systems, because the probability with which any particular level is realized depends on spending on education, which in turn depends on the system of ﬁnancing education. It is taking the new distribution of income that results into account that yields a higher steady-state welfare level under the state system.
References 37 systems and residential sorting, schools, and household sorting. In particular, it would be of interest to see more work that examined how different education systems matter, and that provided an empirical basis on which to assess different policy proposals. At the school level, very little is known about how parents, teachers, students, administrators, and the community interact in producing schooling of a particular quality. I think that the largest challenge here is the creation of a convincing multiple principal-agent model that endogenizes the quality of the school in response to information constraints, the availability of alternative options, and the system in which it is embedded.
Advances in economics and econometrics, vol. 2 by Dewatripont M., Hansen L.P., Turnovsky S.J. (eds.)