The Welfare Implications of School Voucher Design: Evidence From India (Poster 36)

• In Event: Promising Scholarship in Education Research: Dissertation Fellows and Their Research

Abstract

While private school vouchers are a common feature of education markets, there is considerable variation in how policies are designed. In India – the largest primary school voucher system in the world – schools are required to participate, cannot charge fees to voucher students, and are reimbursed according to their tuition levels. This paper develops a unified framework to estimate how the design of voucher policies affect students, schools, and overall cost-effectiveness. The analysis is conducted with novel data on voucher applications (including rank-ordered lists and centralized lottery results), student enrollment and learning outcomes, and school characteristics that covers one of the largest states in India. The reduced-form results are that voucher recipients benefit from access to preferred schools, but the design of voucher payments – which reimburses schools according to their tuition levels – incentivizes schools to raise prices, harming the 95% of students who do not receive a voucher. To infer the equilibrium welfare consequences of alternative designs, the paper then develops a demand and supply model for schooling that incorporates endogenous school responses. On net, the existing policy’s welfare benefits exceed costs. However, switching to a flat voucher system – which instead reimburses schools a fixed amount – would eliminate the distortionary price response and increase cost-effectiveness. Allowing schools to voluntarily opt-out or charge additional fees to voucher students increases school profit but reduces student welfare. This underscores the importance of policy design in assessing the costs and benefits of voucher programs.

Author

• Harshil Sahai, University of Chicago
  Presenting Author