Center for Economic Research, Department of Economics, University of Minnesota
In this paper, I analyze private school formation and composition, when a student's
educational achievement depends upon the student's type and the school's peer group
and per student expenditures. I develop applied general equilibrium techniques to find
equilibrium consumption and schooling structure, in the presence of peer group effects.
I find that, depending upon the specification of the technology which converts these
inputs into educational achievement, a variety of outcomes can arise in equilibrium.
For example there can be segregation or mixing across schools, or a combination of
both. Lastly, I consider the welfare and distributional effects of three policy changes.
I show that equalizing expenditures across schools reduces the range and the standard
deviation of the distribution of human capital, as does forcing certain forms of integration.
Both policies imply a welfare loss. I also study a voucher system. Implementing
such a policy is welfare improving, given the specification of the utility function chosen
Caucutt, E.M., (1996), "Peer Group Effects in Applied General Equilibrium", Discussion Paper No. 293, Center for Economic Research, Department of Economics, University of Minnesota.
Caucutt, Elizabeth M..
Peer Group Effects in Applied General Equilibrium.
Center for Economic Research, Department of Economics, University of Minnesota.
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