Estimating an Equilibrium Model of Horizontal Competition in Education

68 Pages Posted: 20 Aug 2019

Date Written: August 2019

Abstract

The quality of the match between students and schools affects learning but little is known about the magnitude of these effects or how they respond to changes in market structure. I develop a quantitative equilibrium model of school competition with horizontal competition in match quality. I estimate the model using data from Pakistan, a country with high private enrollment, and (1) quantify the importance of good matches, (2) show that profit-maximizing private schools' choices of quality advantage wealthier students, increasing inequality and reducing welfare and learning, and (3) provide intuition for when interventions in the market are valuable. I find that match matters: moving a student from her worst to best match school doubles yearly average test score gains. Setting match-specific quality socially optimally in private schools would greatly reduce inequality in learning between rich and poor students while increasing learning and welfare. These positive effects are amplified when students' enrollment decisions are more responsive to quality.

Keywords: horizontal quality in education, school competition, structural models of education markets

JEL Classification: I2, L1, O1

Suggested Citation

Bau, Natalie, Estimating an Equilibrium Model of Horizontal Competition in Education (August 2019). CEPR Discussion Paper No. DP13924, Available at SSRN: https://ssrn.com/abstract=3439479

Natalie Bau (Contact Author)

University of Toronto ( email )

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