/pdf/the-theory-of-industrial-organization-19bejph0ej.pdf

The Theory of Industrial Organization

Economics is broadening its scope from analysis of markets to study of general social interactions. Developments in game theory, the economics of the family, and endogenous growth theory have led the way. Economists have also performed new empirical research using observational data on social interactions, but with much less to show. The fundamental problem is that observable outcomes may be generated by many different interaction processes, so empirical findings are open to a wide variety of interpretations. To make sustained progress, empirical research will need richer data, including experiments in controlled environments and subjective data on preferences and expectations.

/pdf/economic-analysis-of-social-interactions-18ntlg8si2.pdf

Economic Analysis of Social Interactions

A central issue in school choice is the design of a student assignment mechanism. Education literature provides guidance for the design of such mechanisms but does not offer specific mechanisms. The flaws in the existing school choice plans result in appeals by unsatisfied parents. We formulate the school choice problem as a mechanism design problem and analyze some of the existing school choice plans including those in Boston, Columbus, Minneapolis, and Seattle. We show that these existing plans have serious shortcomings, and offer two alternative mechanisms each of which may provide a practical solution to some critical school choice issues.

/pdf/school-choice-a-mechanism-design-approach-11t5vq18ed.pdf

School Choice: A Mechanism Design Approach

This paper uses a unique data set to measure peer effects among college age roommates. Freshman year roommates and dormmates are randomly assigned at Dartmouth College. I find that in this group, peer effects are very important in determining levels of academic effort and in decisions to join social groups such as fraternities. Residential peer effects are markedly absent in other major life decisions such as choice of college major. Several forms of peer effects are considered. The data support a model in which peer effects are driven by roommate behavior after the freshmen arrive. Social learning based on a roommate's observable pre-Dartmouth information or skills appears to be less important. Peer effects in GPA occur at the individual room level whereas peer effects in fraternity membership occur both at the room level and the entire dorm level. I also find that a freshman with high social ability is likely to remain with his or her roommates in sophomore year, but high academic ability actually decreases roommate retention.

/pdf/peer-effects-with-random-assignment-results-for-dartmouth-1blf0utgqd.pdf

Peer Effects with Random Assignment: Results for Dartmouth Roommates

Equality of Educational Opportunity.

A theoretical and computational model with tax-financed, tuition-free public schools and competitive, tuition-financed private schools is developed. Students differ by ability and income. Achievement depends on own ability and on peers' abilities. Equilibrium has a strict hierarchy of school qualities and two-dimensional student sorting with stratification by ability and income. In private schools, high-ability, low-income students receive tuition discounts, while low-ability, high-income students pay tuition premia. Tuition vouchers increase the relative size of the private sector and the extent of student sorting, and benefit high-ability students relative to low-ability students.

Competition between Private and Public Schools, Vouchers, and Peer-Group Effects

https://www.isid.ac.in/~tridip/Teaching/DevelopmentMicroeconomics/Readings/Epple&Romano_JPubE1996.pdf

Ends against the middle: Determining public service provision when there are private alternatives

Government may provide a good that can, if legally permitted, be supplemented by private purchases. Policy is determined by majority rule. Under standard assumptions on preferences, a majority voting equilibrium exists. A regime of positive government provision with no restriction on private supplements is shown to be majority preferred to a regime of either only market provision or only government provision. Combined public and private expenditure on the good is higher under this dual-provision regime than under either of the alternatives. Under some preference configurations, the median-income voter is pivotal; under others, a voter with income below the median is pivotal.

Public Provision of Private Goods

We present an equilibrium model of the market for higher education. Our model simultaneously predicts student selection into institutions of higher education, financial aid, educational expenditures, and educational outcomes. We show that the model gives rise to a strict hierarchy of colleges that differ by the educational quality provided to the students. We also develop a new estimation procedure that exploits the observed variation in prices within colleges. Identification is based on variation in endowments and technology. It does not rely on observed variation in potentially endogenous characteristics of colleges such as peer quality measures and expenditures. We estimate the structural parameters using data collected by the National Center for Education Statistics and aggregate data from Peterson's and the National Science Foundation.

Admission, Tuition, and Financial Aid Policies in the Market for Higher Education

We survey the theoretical and empirical literature on peer effects in education. Theoretical models of peer effects are first summarized. Models of educational provision regimes in which peer effects play a central role are then discussed. Next we discuss the identification issues in estimating peer effects and strategies used to resolve them. Last we survey the empirical evidence on and channels of peer effects in education. JEL Codes: I210, C590, D620

Richard Romano

Papers

Competition between Private and Public Schools, Vouchers, and Peer-Group Effects

Ends against the middle: Determining public service provision when there are private alternatives

Public Provision of Private Goods

Admission, Tuition, and Financial Aid Policies in the Market for Higher Education

Peer Effects in Education: A Survey of the Theory and Evidence