Opting-out of Public Education in Urban Economies

We investigate how mobility among communities in residence-based public education systems influence households’ choices among public and private schooling. With this objective, we construct a model in which households differ along a single dimension: income. Intermediate income households unsatisfied with their local public school can either move to a community with a better public school or, if the price of housing there is very high, not move and acquire private education. If they choose the latter, perfect income stratification across educational sectors no longer characterizes equilibrium. Moreover, the private schools these households choose have lower quality than some private counterparts.