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Do Households Value Competition Among Public Schools A Natural Experiment H Spencer Banzhaf1 Georgia State University Garima Bhalla2 July 2007 1 Corresponding Author Associate Professor Department of Economics PO Box 3992 Atlanta GA 30302 404 651 6981 hsbanzhaf gsu edu http aysps gsu edu people BanzhafS html 2 Former Masters student Public Policy Institute Georgetown University 1 Do Households Value Competition Among Public Schools A Natural Experiment H Spencer Banzhaf Georgia State University Garima Bhalla July 2007 Abstract Perennial discontent with public education is a constant source of proposed reforms One such reform is school choice While experience with outright voucher programs is very limited the Tiebout mechanism suggests that school districts have always operated within a choice context If this Tiebout competition works municipalities with more districts should have more effective schools This paper tests whether households expect these effects and whether they value them It does so by studying the effect on real estate prices of a natural experiment provided by the surprise breakup of the Los Angeles Unified School District into 11 minidistricts in April 2000 We find consistent evidence that households valued this decentralization with a 1 4 percentage point increase in housing values in the LAUSD area over pre existing trends compared to control districts The result is robust to a variety of specifications and appears to be fairly homogenous within the LAUSD area JEL Codes I2 R21 2 Do Households Value Competition Among Public Schools A Natural Experiment3 H Spencer Banzhaf Georgia State University Garima Bhalla May 2007 Perennial discontent with the quality of public education is a constant source of new educational reforms One old idea only recently being experimented with is school choice in which households receive free public schooling or vouchers for private schools 4 Theoretically by increasing competition this expansion of choices might force



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