Junior Recruitment Seminar presented by Claudia Allende, Applied

Abstract: This paper studies families’ preferences for peers in the school and the implications of thosepreferences for the distribution of academic outcomes. I develop an equilibrium model ofschool competition and student sorting under social interactions. In the model, families differby human capital and income. Academic achievement depends on own characteristics, schoolproductivity, and the characteristics of the peers. Geographic differentiation gives schools localmarket power to increase prices and decrease quality in the absence of close substitutes. Ontop of that, social interactions generate interdependencies in demand that add a new dimen-sion for school differentiation. This modifies school incentives through two channels: increaseddifferentiation strengthens market power for some schools (direct channel) and incentivizes ascreening strategy that exploits heterogeneous responses to prices and quality to intensify thatdifferentiation (strategic channel). To study the empirical importance of these mechanisms, Iestimate the model using administrative microdata from Peru. I address endogeneity of prices,quality, and peers by combining a regression discontinuity in the assignment of a scholarshipwith instruments that exploit the timing and local variation of a generous teacher paymentreform and shocks to student sorting generated by a teachers’ strike. I find that social interac-tions have sizable effects, increasing the income gap in academic achievement by 30 percentagepoints. I use the predictions of the model to analyze the effects of counterfactual education poli-cies in equilibrium. I then decompose the mechanisms to provide guidance on how to designeducation policies that improve the distribution of outcomes.

Paper available here.

Link to webpage: https://www.claudiaallendesc.com/

To meet with Claudia Allende, take her for lunch and/or join for dinner, please sign up here: https://wiki.ucl.ac.uk/display/AppliedMicroeconomicSeminar/Applied+Micro+Seminar

PhD students: please sign up for the slot after the talk.