Distorted quality signals in school markets

Abstract

Information plays a key role in markets with consumer choice. In education, data on school quality is often gathered through standardized testing. However, the use of these tests has been controversial because of behavioral responses that could distort performance measures. We study the Chilean educational market and document that low-performing students are underrepresented in test days, generating distortions in school quality information. These distorted quality signals a↵ect parents' school choice and induce misallocation of public programs. These results indicate that undesirable responses to test-based accountability systems may impose significant costs on educational markets.

The Intergenerational Transmission of College: Evidence from the 1973 Coup in Chile

“…In the context of this study, parents in the affected cohorts experienced lower income, more unemployment, and lower social mobility Bautista et al (2022), all factors which are likely to have contributed to fewer educational opportunities for their children, who as a consequence exhibit lower levels of educational attainment. This is particularly important in the case of Chile because, after a reform in 1981, the country developed one of the most market-oriented educational systems in the world and as such educational attainment depended heavily on the income-generating capacity of households (Cuesta et al, 2020). In addition to these "income effects," we also find evidence supporting assortative mating and fertility as potential mechanisms.…”

The intergenerational transmission of higher education: Evidence from the 1973 coup in Chile

“…Negative economic consequences from fewer college opportunities are likely to be important anywhere, but we argue that they are particularly key in the case of Chile. In 1981, a large reform package incentivized the steady development of one of the most market-oriented educational systems in the world (Figlio and Loeb, 2011;Cuesta et al, 2020). As a consequence, the market for primary, secondary, and tertiary education has been led by relatively higher-quality private institutions that charge monthly fees and families aspire to get into.…”

The intergenerational transmission of higher education: Evidence from the 1973 coup in Chile

“…Negative economic consequences from fewer college opportunities are likely to be important anywhere, but we argue that they are particularly key in the case of Chile. In 1981, a large reform package incentivized the steady development of one of the most market-oriented educational systems in the world (Figlio and Loeb, 2011;Cuesta et al, 2020). As a consequence, the market for primary, secondary, and tertiary education has been led by relatively higher-quality private institutions who charge monthly fees and families aspire to get into.…”