Crowding in Private Quality: The Equilibrium Effects of Public Spending in Education

Tahir Andrabi, Natalie Bau, Jishnu Das, Naureen Karachiwalla and Asim Khwaja

No 30929, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimate the equilibrium effects of a public-school grant program administered through school councils in Pakistani villages with multiple public and private schools and clearly defined catchment boundaries. The program was randomized at the village-level, allowing us to estimate its causal impact on the market. Four years after the start of the program, test scores were 0.2 sd higher in public schools. We find evidence of an education multiplier: test scores in private schools were also 0.2 sd higher in treated markets. Consistent with standard models of product differentiation, the education multiplier is greater for those private schools that faced a greater threat to their market power. Accounting for private sector responses increases the program's cost-effectiveness by 85% and affects how a policymaker would target spending. Given that markets with several public and private schools are now pervasive in low- and middle-income countries, prudent policy requires us to account for private sector responses to public policy, both in their design and in their evaluation.

JEL-codes: H44 H52 I22 I25 I28 O12 O15 (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-edu and nep-ure
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