Epple, D., Figlio, D., & Romano, R., (2004)

‘Competition Between Public and Private Schools:
Testing Stratification and Pricing Predictions.’

Journal of Politcal Economy 88, pp. 1215-1245

• Tests for evidence of the stratification by income and ability, both within and across schools, predicted by Epple & Romano's (1998) models.
• This stratification pattern implies negative within-private-school relationships between income and ability, at least after controlling for positive correlation between income and ability in the population.
• It also predicts a negative within-private-school relationship between ability and tuition.
• The authors use panel data from a nationally representative sample of public and private school pupils to test their predictions.

Key results:

• The authors find that income and ability are each independently and strongly positively correlated with selection into a top private school.
• They find that within a private school (controlling for fixed effects), the relationship between income and ability is statistically indistinguishable from zero.
• The authors also find some evidence of �discounting to ability� in the private sector, though they have only an imperfect proxy for tuition-paid.