Nechyba, T., (2005)

‘Income and peer quality sorting in public and private schools’

in Hanushek, E., & Welch, F. (eds.), Handbook of the Economics of Education,
Elsevier B.V., North-Holland.

• Reviews the literature on sorting/peer effects in the schools system – with a particular emphasis on theoretical & computational models.
• Nechyba points out that in order to explain how public school quality can vary so dramatically in equilibrium, a model must come to terms with the link between residential location and school access.
• Moreover they must explain the competitive advantage enjoyed by private schools which allows them to charge fees. Most models proceed by assuming that private schools can choose their inputs (student quality and financial inputs) and/or have access to different production technologies.
• Because most of the general equilibrium models in this area are too complex to yield analytical solutions, ‘computational’ models (which simulate changes in calibrated models) are widely used.
• In most models vouchers appear to reduce income segregation. Their effect on public school quality, however, depends critically on the assumptions made about how schools respond to competition.