Working Paper

18/023

Upping the Ante: The Equilibrium Effects of Unconditional Grants to Private Schools

Tahir Andrabi
Jishnu Das
Asim I Khwaja
Selcuk Ozyurt
Niharika Singh

We test for financial constraints as a market failure in education in a low-income country by experimentally allocating unconditional cash grants to either one (L) or to all (H) private schools in a village. Enrollment increases in both treatments, accompanied by infrastructure investments. However, test scores and fees only increase in H along with higher teacher wages. This differential impact follows from a canonical oligopoly model with capacity constraints and endogenous quality: greater financial saturation crowds-in quality investments. Higher social surplus in H, but greater private returns in L underscores the importance of leveraging market structure in designing educational subsidies.

 

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Citation:

Andrabi et al. 2018.  Upping the Ante: The Equilibrium Effects of Unconditional Grants to Private Schools. RISE Working Paper Series. 18/023. https://doi.org/10.35489/BSG-RISE-WP_2018/023.