Do Private Schools Provide Competition for Public Schools?

55 Pages Posted: 11 Aug 2000 Last revised: 18 Aug 2010

Caroline M. Hoxby

Stanford University; National Bureau of Economic Research (NBER); Hoover Institution; Stanford University

Date Written: December 1994


Arguments in favor of school choice depend on the idea that competition between schools improves the quality of education. However, we have almost no empirical evidence on whether competition actually affects school quality. In this study, I examine the effects of inter-school competition on public schools by using exogenous variation in the availability and costs of private school alternatives to public schools. Because low public school quality raises the demand for private schools as substitutes for public schools, we cannot simply compare public school students' outcomes in areas with and without substantial private school enrollment. Such simple comparisons confound the effect of greater private school competitiveness with the increased demand for private schools where the public schools are poor in quality. I derive instruments for private school competition from the fact that it is less expensive and difficult to set up religious schools, which accounts for 9 out of 10 private school students in the U.S., in areas densely populated by members of the affiliated religion. I find that greater private school competitiveness significantly raises the quality of public schools, as measured by the educational attainment, wages, and high school graduation rates of public school students. In addition, I find some evidence that public schools react to greater competitiveness of private schools by paying higher teacher salaries.

Suggested Citation

Hoxby, Caroline M., Do Private Schools Provide Competition for Public Schools? (December 1994). NBER Working Paper No. w4978. Available at SSRN:

Caroline M. Hoxby (Contact Author)

Stanford University ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Hoover Institution ( email )

Stanford, CA 94305-6010
United States

Stanford University ( email )

Department of Economics
Stanford University
Stanford, CA 94305
United States
650-725-8719 (Phone)
650-725-5702 (Fax)

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