This is a question about educational economics.

There is a phenomenon when studying countries like the USA and Chile (that have implemented voucher systems) that reducing the friction in a "marketplace" in education (e.g. choosing a school) results in a reduction in equality. It results in stratification of students into schools that match with social class.

It seems fairly obvious to me that this is a phenomenon that I'm sure has been studied or talked about in economics in a general way - I just don't even know where to look.

I'm looking for research into the idea that where there is some kind of inelastic good (e.g. health, housing, education) then reducing friction in a market will always have an effect of reducing equality.

Has anybody studied this? Any pointers to literature? Or if I'm just wrong in my observation of this being "fairly obvious" then I'd love to hear it.

up vote 3 down vote accepted

The key theoretical work, at least in the area of education, comes from Milton Friedman and his "Theory of School Choice". Important references are:

Friedman, M. (1962), The Role of Government in Education. In Capitalism and Freedom. Chicago: University of Chicago Press.

Friedman, M. and Friedman, R. (1980). Free to choose. New York: Harcourt Brace Jovanovich.

Check here for a not so old review of the literature on School Choice. Here is an interesting analysis of the Chilean education system, in the light of Friedman's ideas. Friedman had the idea that competition would increase quality across the whole spectrum of schools:

the quality of all schooling would rise so much that even the worst, while it might be
relatively lower on the scale, would be better in absolute quality” (Friedman and Friedman 1980, 170)

  • Thanks so much - this a great answer. Friedman gives the orthodox opinion but the reality what happens is addressed in the NBER (I especially value that chapter that says "it is the threat of competition that matters") – Aldorath Apr 9 '17 at 22:08
  • FYI there are some great reviews of the book by Hoxby. Basically saying that why it represents good but incomplete research and that it certainly shouldn't be used to inform policy (paywalled): jstor.org.ezp01.library.qut.edu.au/stable/… jstor.org.ezp01.library.qut.edu.au/stable/… – Aldorath Apr 9 '17 at 23:09
  • I've done the reading and written a blog post making use of all of this information. I have credited this thread and the user @luchonacho for the help. Thanks everyone: nickkellyresearch.com/educational-economics-school-choice – Aldorath Apr 9 '17 at 23:50
  • @great it helped! Nice summary post btw! – luchonacho Apr 10 '17 at 6:36

NBER has a book with papers on the matter, Hoxby, C. M.(ed) (2003). The economics of school choice . Contents:

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I also quote here the paragraph-titles in the Introduction (by Hoxby)

  1. Market Structure Makes the Difference.
  2. It Helps to Call a Spade a Spade.
  3. One Cannot Avoid the Interdependence of School Choice and School Finance, so One Might as Well Enjoy It.
  4. School Choice Is More Interesting to People Who Are Puzzled by the Inefficacy of School Inputs.
  5. You Cannot Predict the Effects of School Choice on Student Sorting Without the Tools of General Equilibrium.
  6. School Choice Will Affect Labor Markets for Educators.
  7. Evidence on School Choice Requires the Latest Methods in Nonexperimental Empirical Analysis.
    8.It Is Important to Know Which Students Are Likely to Be Affected by School Choice.
  8. School Choice Is All about School Supply.
  9. It Is the Threat of Competition That Matters

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