Crowding in private quality: the equilibrium effects of public spending in education

Author(s): Andrabi, Tahir; Bau, Natalie; Das, Jishnu; Karachiwalla, Naureen; Khwaja, Asim

Date: 2021

Pages: 63 p.

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We study the effects of a policy that distributed large cash grants through school councils to public schools in rural Pakistan. Using a village-level randomized control trial, we identify the medium-term equilibrium effects of this policy in a marketplace where the private sector is large and there is substantial school choice. Learning increases in both the public and private sectors. Private school improvements appear to be driven by competitive pressures. Private schools located closer to public schools and in villages with higher quality public schools experience larger improvements. Failing to measure learning improvements in the private sector greatly reduces cost-effectiveness. Our findings suggest that, through public sector investment, the government can leverage choice and market structure to improve students’ outcomes across sectors.

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