| While there has been a great deal of discussion recently about the condition of education in the United States, much of the debate among economists, educators, and policymakers has focused on the public sector. However, any policy that is undertaken to change public schools will also have an impact on schools in the private sector. The behavior of private institutions has direct implications for the students who attend them, as well as for determining which students are served by each sector. Much of the existing literature has focused on the private sector in aggregate, with little examination of the decisions of individual schools.; This research presents a model of student sorting and private school behavior, incorporating aspects from the nonprofit, club, and product differentiation literatures. The model is calibrated to examine the effect of alternative specifications of the objective function on decisions of the school and the distribution of households across schools in equilibrium. Then, a unique panel data set in which private schools are linked geographically to their local education markets is assembled to examine how differences in educational policy across markets and changes in policy over time affect private school decisions.; From the empirical examination, an increase in public school quality leads to lower price and quality in the private school. This suggests that in response to improved public education, private schools may distinguish themselves in other dimensions, catering more to households with higher levels of income and stronger cultural preferences. These findings are robust to various empirical specifications and geographical market definitions; furthermore, they tend to support the computational analysis which uses the theoretical specification of the private school as a non-profit institution, with an objective function that includes household utilities.; Overall, I find that private schools are indeed active agents in the market for education, both affected by the reforms in the public sector, and affecting the impact of those policies, through the characteristics of education provided to private school students and the stratification of households across sectors. Without including private school responses, we may find inaccurate estimates of policy effects, both in magnitude and direction. |
