2000•American Economic ReviewRequires access

Does Competition Among Public Schools Benefit Students and Taxpayers?

Caroline Hoxby

Abstract

Tiebout choice among districts is the most powerful market force in American public education. Naive estimates of its effects are biased by endogenous district formation. I derive instruments from the natural boundaries in a metropolitan area. My results suggest that metropolitan areas with greater Tiebout choice have more productive public schools and less private schooling. Little of the effect of Tiebout choice works through its effect on household sorting. This finding may be explained by another finding: students are equally segregated by school in metropolitan areas with greater and lesser degrees of Tiebout choice among districts. (JEL H70, I20)

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Key concepts: Tiebout model, Metropolitan area, Economics, Competition (biology), Sorting, School choice, Public good, Public education