Educational Vouchers When There Are Peer Group Effects—size Matters*

Abstract

In this article, I study the effects various educational voucher policies have on the sorting of children across schools and the per-student expenditure levels at these schools, when a child's peer group matters and students differ over income and ability. I ®nd that, depending on the magnitude of the voucher, switching from a public system to a voucher system could entail either welfare gains or losses. All voucher policies under consideration lead to greater inequality than the public system; however, these increases are not monotone in the voucher size.

Can Increasing Private School Participation and Monetary Loss in a Voucher Program Affect Public School Performance? Evidence from Milwaukee

“…Initially, it allowed only nonsectarian private schools to participate and student participation in the MPCP was 6 Nechyba (2000) and Caucutt (2002) examine distributional and welfare consequences of targeting vouchers to low income types; Epple and Romano (2002) and Hoxby (2001) consider the effect of alternative voucher policies on stratification and equity. These papers relate to voucher design, but their concern is not its impact on public school performance.…”

Classroom Peer Effects and Student Achievement

“…Vouchers, charter schools, and other school choice programs may benefit those who remain in traditional public schools by engendering competition that leads to improvements in school quality, but such policies may also harm those left behind by diminishing the quality of their classmates (Epple and Romano (1998), Caucutt (2002)). Sorting students into classrooms by ability can likewise have significant effects on student achievement, depending on the magnitude of peer influences (Epple, Newlon, and Romano (2002)).…”

Sorting and Long-Run Inequality

“…In particular, a negative correlation between fertility and education, a decreasing marginal effect of parental education on children's years of education, and a process of wage determination that is sensitive to the relative supply of skilled to unskilled workers all contribute to our qualitative and quantitative conclusions. In addition to the paper by Kremer, our work is related to several others in the literature. Benabou (1996a), Caucutt (1997), Cooper (1997), Durlauf (1995), Epple and Romano (1996) and Fernandez andRogerson (1996, 1997) examine the effects of neighborhood and school sorting generated either endogenously by education policies or exogenously via increased neighborhood stratification. Banerjee and Newman (1993), Benabou (1996b), Fernandez and Rogerson (1998), Galor and Zeira (1993), Loury (1981), and Ljungvist (1993) examine the effects of the existence of borrowing constraints on the dynamic evolution of the economy and income inequality.…”