Essays on school choice (Chile)

The first essay1 analyzes the general equilibrium effects of school competition in a voucher system when there are peer group effects, public schools are not profit maximizers and private schools behave competitively. The equilibrium is characterized by: (i) sorting of students by school type, and (ii) ambiguous effect of competition on aggregate performance. Exploiting the across market variation we estimate the effect of competition on educational achievement and sorting using Chilean data. Our results suggest that competition is associated with more sorting but it has a positive but moderate effect on aggregate test scores. Our estimations suggest that public school students, in places with more competition, are not worse off (in terms of educational achievement.); In the second essay I analyze the dynamics of private school formation (entry and exit) in Chile. Among the results I find evidence that suggests that: (i) the market is indeed dynamic, private schools respond to local market conditions such as public school quality, (ii) private and public schools seem to have different objectives functions, mainly reflected in their exit decision, where both types respond very differently to the market signals, and (iii) horizontal differentiation, although missing in academic and policy discussions, matters to explain what happens in this market.; The last essay is a theoretical model of school competition that takes into account specificities of this market, such as the peer group effect, nonprofit behavior for public schools, economies of scale and entry costs. Surprisingly, these specificities have important implications for the equilibrium and its properties. In particular, we find that the post-entry profit level is nonlinear in N (the number of private schools) what might generate multiple equilibria and coordination problems in the first stage, different from previous coordination problems discussed in the industrial organization entry literature. This might explain why in Chile we observe a lot of heterogeneity in private school competition in small markets and why we observe a high number of private schools failing right after entry.; 1Coauthored with Juan Pablo Valenzuela.