Content area
Full Text
This paper extends the analysis of Epple and Romano (1998a, b), who argue that vouchers encourage private schools to "skim the cream off" public schools. Because the education received by students depends on the quality of their classmates, this loss reduces the quality of education received by those remaining in the public system-the peer group effect. In our model, vouchers allow low-income students to escape the frustration of having to conform to the uniformity of the public school system. Ultimately, the size of the dropout effect relative to the peer group effect is an empirical question. Nevertheless, to the extent that voucher use reduces the student dropout rate, the peer group externality becomes insufficient in itself to prevent reconsideration of a voucher system on equity as well as efficiency grounds.
1. Introduction
Since 1990, there has appeared a burgeoning literature, both theoretical and empirical, on the effects of school vouchers (see Hoxby 1996; Hoenack 1997; West 1997; Hoyt and Lee 1998; Rouse 1998b). Because the use of vouchers increases the size of the private school sector at the expense of the public and because of the public policy controversy that that result has created, considerable attention has been directed at measuring the efficiency of private schools relative to public (Evans and Schwab 1995; Sander and Krautman 1995). Here the early claim in the literature-that Catholic schools "do better" (Coleman, Hoffer, and Kilgore 1982)-has driven much of the subsequent analysis and has led critics to emphasize that early results that at first sight seem favorable to Catholic schools could result from student and/or parent selection bias (Murnane, Newstead, and Olsen 1985; Neal 1997). After controlling for various selection biases (Figlio and Stone 1999), researchers have accordingly tended to find that private schools (as a group) do not perform any better than do their public counterparts (Neal 1998).'
Two aspects of this debate have attracted our attention. First, most participants use "student achievement" (i.e., the ability to score well on tests in math, English, science, and so on) as the benchmark for measuring educational performance and hence the basis for assessing the impact of vouchers. Our paper is both an addition to and a departure from this approach. We focus on the role of vouchers in...