Anti-Lemons: School Reputation and Educational Quality / W. Bentley MacLeod, Miguel Urquiola.

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MacLeod, W. Bentley

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w15112.Publication details: Cambridge, Mass. National Bureau of Economic Research 2009.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Friedman (1962) argued that a free market in which schools compete based upon their reputation would lead to an efficient supply of educational services. This paper explores this issue by building a tractable model in which rational individuals go to school and accumulate skill valued in a perfectly competitive labor market. To this it adds one ingredient: school reputation in the spirit of Holmstrom (1982). The first result is that if schools cannot select students based upon their ability, then a free market is indeed efficient and encourages entry by high productivity schools. However, if schools are allowed to select on ability, then competition leads to stratification by parental income, increased transmission of income inequality, and reduced student effort---in some cases lowering the accumulation of skill. The model accounts for several (sometimes puzzling) findings in the educational literature, and implies that national standardized testing can play a key role in enhancing learning.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w15112 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w1511 Life Cycle Annuity Valuation /	nber w15110 Risk Allocation, Debt Fueled Expansion and Financial Crisis /	nber w15111 Risk Sharing, Inequality and Fertility /	nber w15112 Anti-Lemons: School Reputation and Educational Quality /	nber w15113 Global Savings and Global Investment: The Transmission of Identified Fiscal Shocks /	nber w15114 Public Policy, Health Insurance and the Transition to Adulthood /	nber w15115 Capital Income Taxes with Heterogeneous Discount Rates /	Next

June 2009.

Friedman (1962) argued that a free market in which schools compete based upon their reputation would lead to an efficient supply of educational services. This paper explores this issue by building a tractable model in which rational individuals go to school and accumulate skill valued in a perfectly competitive labor market. To this it adds one ingredient: school reputation in the spirit of Holmstrom (1982). The first result is that if schools cannot select students based upon their ability, then a free market is indeed efficient and encourages entry by high productivity schools. However, if schools are allowed to select on ability, then competition leads to stratification by parental income, increased transmission of income inequality, and reduced student effort---in some cases lowering the accumulation of skill. The model accounts for several (sometimes puzzling) findings in the educational literature, and implies that national standardized testing can play a key role in enhancing learning.