Education Market Design in the Presence of Peer Effects: Theory and Evidence From South Korea (JMP)

(with Sam Hwang)

A salient feature of school choice is differences among schools in terms of execution of their admissions. In several known settings, elite/magnet/private schools decide on their admissions first, and the rest of the schools participate in a second stage with remaining students, which we call Sequential Admissions (SA). Among the former group academic screening is commonplace, whereas others use lotteries for admission purposes. Because peer effects play an important role in educational outcomes, we analyze the effect of these disparities on student welfare and distribution when peer effect considerations also affect students' preferences over schools. First we compare SA to centralized Deferred Acceptance (DA). Theoretical analysis demonstrates that the difference in tuition levels between private and public schools influences student sorting under both mechanisms, as well as the comparison of the two mechanisms. To conduct empirical analysis, we estimate a structural model utilizing high school applications data from Seoul. We exploit the increase in the number of private schools and eligibility rule for affirmative action policy to overcome endogeneity of incoming student achievement in schools and tuition, respectively. We show that high-performers have stronger preferences for studying with high-performers compared to others. Counterfactual simulations exhibit that SA and DA yield similar student distribution and welfare at the observed tuition levels. Simulating switch of some schools from lottery based to academic screening based admissions leads to substantial increase in the share of high-performing students in such schools. Moreover, 41% of the overall impact stems from the altered preferences over schools due to students' peer effect considerations.

Education Reform and Behavioral Response: Evidence From South Korea (Tables and Figures) (Appendix)

(with Sejin Ahn and Sam Hwang) (submitted)

We study an education reform resulting in delayed ability tracking for South Korean students during the 1960s-70s. The reform ended a practice of sorting students into elite and non-elite middle schools via admission exams, postponing ability tracking until the high school level. A discontinuity in the probability of students’ facing admission exams based on a birth-date cutoff enabled us to identify the causal effect of the reform on short- and long-run outcomes. We find that the reform increased both the incidence of private tutoring as well as hourly wages amongst students from wealthy households. A causal mediation analysis shows that private tutoring is an important pathway for the effect of the reform on university graduation and hourly wage. Our findings suggest that education reforms can interact with household behavior to yield unintended policy outcomes, especially in developing countries with well-established private tutoring markets.

The Role of Outside Options in Boston Mechanism

This paper examines ex-ante welfare from centralized public school allocation for students who cannot go to private schools when there are others who have such options. I show that when a private school is preferred to only the last option, students prefer Boston Mechanism (BM) to Deferred Acceptance (DA). Analyzing the case of desirable private schools in a model with three public schools, I demonstrate that students who are marginal in the decision of which school to report as top choice are better off under DA compared to BM; whereas inframarginal students are better off under BM. I show that a distribution of preferences with full support guarantees the existence of students who are better off under BM compared to DA. Assuming uniform distribution of preferences allows one to find the fraction of students who are better off under BM compared to DA. Analysis of the effect of private school entry on the welfare of students who cannot access private schools demonstrates that under mild conditions either there are students who are strictly better off after the entry or welfare of none of the students change.