The Effect of School Information on Supply, Demand, and Equilibrium Outcomes

Often parents and students are misinformed about school quality. This is problematic, since accountability through school choice or by voicing concerns (e.g., through parent-teacher associations) could dramatically improve the performance of school systems. A low-information environment may result in: a) lower competition, which in turn may result in lower quality and higher prices, and b) misallocation of students across schools.

Using panel data for the universe of primary and post primary students in Mexico (over 30 million students across grades from 2007 to 2013), we document three stylized facts: First, heterogeneity is pervasive, even within zip code and school markets. The average difference in standardized test scores among schools in a given zip code is 0.7sd, while for those in a given market it is 0.4sd. Second, low-quality schools are not likely to close. About 1% of schools close per year, and the likelihood of closing down is weakly related to test scores. Third, about 12% of students switch schools every year. Students are just as likely to move to lower-quality schools, as to higher-quality schools.

While none of these stylized facts is definitive proof that parents are misinformed and that this results in inefficient outcomes, it strongly suggests this may be the case.