Choice and Competition in Education Markets

This paper presents a new approach for measuring the effects of competition on school performance. We use an equilibrium sorting model to generate an intuitive measure of the competition each school faces, captured by the slope of the school’s demand curve. We then show that this competition measure is positively related to school performance using rich Census data: a one standard-deviation increase in competitiveness leads to a 0.1 standard-deviation performance improvement, controlling for a host of other factors. This positive performance relationship is consistent with strong supply responsiveness, relevant to the school choice debate.