Essays on the Industrial Organization of Education Markets
Creators: Allende Santa Cruz, Claudia
Publisher: name: Columbia University
Year: 2020
Subjects: Economics
Education, Elementary
Education--Marketing
Competition

description: This dissertation combines three essays on the industrial organization of education markets. While these markets share many features with other sectors of the economy, industry-specific frictions may modify the way in which the market equilibrium is determined in education. These three essays study how particular frictions interact with consumers' decisions and the strategic behavior of firms. The first chapter develops a framework to study school competition under a distinct feature of education, which I call social interactions. The second and third chapters consider the role of information frictions in school choice. Chapter 2 focuses on the equilibrium effects of information interventions. Chapter 3 micro-funds the information frictions and provides a framework for identification. Chapter 1, Competition Under Social Interactions and the Design of Education Policies, studies families' preferences for peers in the school and the implications of those preferences for the distribution of academic outcomes. I develop an equilibrium model of school competition and student sorting under social interactions. In the model, families differ by human capital and income. Academic achievement depends on own characteristics, school productivity, and the characteristics of the peers. Geographic differentiation gives schools local market power to increase prices and decrease quality in the absence of close substitutes. On top of that, social interactions generate interdependencies in demand that add a new dimension for school differentiation. This modifies school incentives through two channels: increased differentiation strengthens market power for some schools (direct channel) and incentivizes a screening strategy that exploits heterogeneous responses to prices and quality to intensify that differentiation (strategic channel). To study the empirical importance of these mechanisms, I estimate the model using administrative microdata from Peru. I address endogeneity of prices, quality, and peers by combining a regression discontinuity in the assignment of a scholarship with instruments that exploit the timing and local variation of a generous teacher payment reform and shocks to student sorting generated by a teachers' strike. I find that social interactions have sizable effects, increasing the income gap in academic achievement by 30 percentage points. I use the predictions of the model to analyze the effects of counterfactual education policies in equilibrium. I then decompose the mechanisms to provide guidance on how to design education policies that improve the distribution of outcomes. Chapter 2, Approximating the Equilibrium Effects of Informed School Choice, joint with Francisco Gallego and Christopher Neilson, studies the potential small and large scale effects of a policy designed to produce more informed consumers in the market for primary education. We develop and test a personalized information provision intervention that targets families of public Pre-K students entering elementary schools in Chile. Using a randomized control trial, we find that the intervention shifts parents' choices toward schools with higher average test scores, higher value added, higher prices, and schools that tend to be further from their homes. Tracking students with administrative data, we find that student academic achievement on test scores was approximately 0.2 standard deviations higher among treated families five years after the intervention. To quantitatively gauge how average treatment effects might vary in a scaled up version of this policy, we embed the randomized control trial within a structural model of school choice and competition where price and quality are chosen endogenously and schools face capacity constraints. We use the estimated model of demand and supply to simulate policy effects under different assumptions about equilibrium constraints. In counterfactual simulations, we find that capacity constraints play an important role mitigating the policy effect but in several scenarios, the supply-side response increases quality, which contributes to an overall positive average treatment effect. Finally, we show how the estimated model can inform the design of a large scale experiment such that reduced form estimates can capture equilibrium effects and spillovers. Chapter 3, Information Frictions and School Choice: Evidence from a Quality Disclosure Policy studies the role that information frictions can play in school choice. We exploit the design of an information policy implemented in Chile, under which each household received a map with the location of every school in its municipality and a coded signal for their relative quality measured by their performance in the national standardized test. We exploit the discontinuities in the assignment of the schools and find that parents significantly respond to the information disclosed, providing evidence of information frictions. We then propose a structural model that allows us to distinguish between two types of frictions: inaccurate beliefs about school quality and restricted consideration sets. Our structural model of school choice explicitly considers these frictions and exploits the variation generated by the policy. We distinguish between two types of them. The first one is related to the idea that parents have inaccurate believes on school quality. The second one is related to heterogeneity in search costs that may lead parents to rationally restrict the sets of schools they put attention to, and ignore alternatives which could have been better than their first choice among the alternatives they considered. We provide a detailed description of the model and a sketch on how to estimate it. Finally, we discuss the dynamic implications of information disclosure policies under market incentives. We propose a reputation model in which school owners have reputation concerns. The model suggests that low-powered incentives may be more desirable when gaming -the second type of effort- exists: high-powered incentives have the benefit of inducing more productive effort, but also more gaming. This implies that the regulator should take into account the fact that providing schools with high-powered incentives for increasing good effort also has the shadow cost of increasing gaming.