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Quarterly Journal of Economics Vol. 139 No. 4 2024

Crowding in Private Quality: The Equilibrium Effects of Public Spending in Education

Tahir Andrabi1; Natalie Bau2; Jishnu Das3; Naureen Karachiwalla4; Asim Ijaz Khwaja5

1 Pomona College · 2 University of California Los Angeles, National Bureau of Economic Research, and Bureau for Research and Economic Analysis of Development , United States; Centre for Economic Policy Research, · 3 Georgetown University, National Bureau of Economic Research, and Bureau for Research and Economic Analysis of Development , · 4 International Food Policy Research Institute, United States; Consortium for Development Policy Research and Centre for Economic Research in Pakistan, · 5 Harvard University and National Bureau of Economic Research, United States; Centre for Economic Policy Research, United Kingdom; Centre for Economic Research in Pakistan ,

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Abstract

We estimate the equilibrium effects of a public school grant program administered through school councils in Pakistani villages with multiple public and private schools and clearly defined catchment boundaries. The program was randomized at the village level, allowing us to estimate its causal impact on the market. Four years after the start of the program, test scores were 0.2 standard deviations higher in public schools. We find evidence of an education multiplier: test scores in private schools were also 0.2 standard deviations higher in treated markets. Consistent with standard models of product differentiation, the education multiplier is greater for those private schools that faced a greater threat to their market power. Accounting for private sector responses increases the program’s cost-effectiveness by 85% and affects how a policy maker would target spending. Given that markets with several public and private schools are now pervasive in low- and middle-income countries, prudent policy requires us to account for private sector responses to public policy, both in policies’ design and evaluation.

DOI
10.1093/qje/qjae014
Volume
139
Issue
4
Pages
2525-2577
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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