PRICED OUT: AGGREGATE INCOME SHOCKS AND SCHOOL PRICING IN THE CHILEAN VOUCHER MARKET

Benjamin Feigenberg

Economic Inquiry, 2021, vol. 59, issue 2, 696-721

Abstract: This paper studies private school market behavior. If school quality is a normal good and schools have market power, profit‐maximizing schools may lower enrollment when incomes rise given parents' preferences for small class sizes and high‐socioeconomic status (SES) classmates. To demonstrate the possibility of such a response, I present simulations based on a stylized model of school pricing. Using data on local income variation in Chile, I show that positive income shocks cause private school prices to rise and enrollments to fall. Enrollment declines are concentrated among low‐SES students, who do not experience the same test score gains as their higher‐SES peers. (JEL I24, L1, O15)

Date: 2021
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