Sunday, November 01, 2009

Price elasticity of school attendance

This paper uses sibling discounts at Catholic schools to measure the elasticity of demand for private schooling. This has some relevance here as the recession in Ireland is rumoured to be inducing a significant fall in demand for private schools. What the price-responses are I don't know. If supply is inelastic, it should be pretty big.
One of the authors of the paper, Susan Dynarski, will be visiting UCD soon for the launch of the New ERA report.

Cheaper By the Dozen: Using Sibling Discounts at Catholic Schools to Estimate the Price Elasticity of Private School Attendance
Susan Dynarski, Jonathan Gruber, Danielle Li
The effect of vouchers on sorting between private and public schools depends upon the price elasticity of demand for private schooling. Estimating this elasticity is empirically challenging because prices and quantities are jointly determined in the market for private schooling. We exploit a unique and previously undocumented source of variation in private school tuition to estimate this key parameter. A majority of Catholic elementary schools offer discounts to families that enroll more than one child in the school in a given year. Catholic school tuition costs therefore depend upon the interaction of the number and spacing of a family's children with the pricing policies of the local school. This within-neighborhood variation in tuition prices allows us to control for unobserved determinants of demand with a set fine geographic group fixed effects while still identifying the price parameter.

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