Education and Education Policy

‘Actors in the Child Development Process,’ Flinn, C. (with D. Del Boca), 2019.

We construct and estimate a model of child development in which both the parents and children make investments in the child’s skill development. In each period of the development process, partially altruistic parents act as the Stackelberg leader and the child the follower when setting her own study time. We then extend this non-cooperative form of interaction by allowing parents to offer incentives to the child to increase her study time, at some monitoring cost. As in Del Boca et al. (2016), we find that the most effective set of policies are (external) conditional cash transfers, in which the households receives an income transfer given that the child’s cognitive ability exceeds a prespecified threshold. We find that the possibility of households using internal conditional cash transfer greatly increases the cost-effectiveness of external conditional cash transfer policies.

‘Horizontal Differentiation and the Policy Effect of Charter Schools,’ Gilraine, R.(with U. Petronijevic, J. Singleton), 2019.

While school choice may enhance competition, incentives for public schools to raise productivity may be muted if public education is viewed as imperfectly substitutable with alternatives. This paper estimates the aggregate effect of charter school expansion on education quality while accounting for the horizontal differentiation of charter school programs. To do so, we combine student-level administrative data with novel information about the educational programs of charter schools that opened in North Carolina following the removal of the statewide cap in 2011. The dataset contains students’ standardized test scores as well as geocoded residential addresses, which allow us to compare the test score changes of students who lived near the new charters prior to the policy change with those for students who lived farther away. We apply this research design to estimate separate treatment effects for exposure to charter schools that are and are not differentiated horizontally from public school instruction. The results indicate learning gains for treated students that are driven entirely by non-horizontally differentiated charter schools: we find that non-horizontally differentiated charter school expansion causes a 0.05 SD increase in math scores. These learning gains are driven by public schools responding to increased competition.

‘School Accountability and the Dynamics of Human Capital Formation,’ Gilraine, R., 2018.

This paper sets out a new approach that allows dynamic interactions among school inputs to be credibly identified for the first time. The approach exploits a feature of a major federal accountability scheme whereby schools are effectively held accountable only if there are forty or more students in given demographic groups. Year-to-year treatment variation associated with this discontinuity provides the period-by-period randomization necessary to identify dynamic interactions among school inputs. Using detailed administrative data from North Carolina, I find evidence of dynamic input complementarities: accountability next period leads to a 0.18σ test score increase among those receiving treatment in the prior period relative to those who did not. Since the differential response incorporates the effects of both the technology and educators’ responses, I use a theoretical model to rationalize the reduced-form estimates as the relative benefit of investment in each period, allowing me to identify the dynamic input complementarity parameters in the technology. With estimates of the dynamic technology in hand, I consider the efficacy of alternative accountability schemes: conditioning on initial rather than prior test scores can both increase average achievement and reduce the pervasive test score gaps that plague public education today.

‘Identifying Multiple Treatments from a Single Discontinuity: An Application to Class Size Caps,’ Gilraine, R., 2018.

In many settings, a policy discontinuity comprises several treatments that cannot be separately identified using a standard regression discontinuity design. I propose a method for identifying distinct treatment components from a single discontinuity, applying my strategy to the discontinuity associated with class size caps – a widespread education policy for reducing class sizes. Using data from New York City for 2009-2013, the results indicate that class size reductions increase student achievement, though these gains are counteracted by a newly-hired teacher effect, highlighting a trade-off between class size and teacher quality in practice. The method has broad potential applicability.

‘Education Reform in General Equilibrium: Evidence from California’s Class Size Reduction,’ Gilraine, R. (with H. Macartnet, and R. McMillan), 2018.

This paper sheds new light on general equilibrium responses to major education reforms, focusing on a sorting mechanism likely to operate whenever a reform improves public school quality significantly. It does so in the context of California’s statewide class size reduction program of the late-1990s, and makes two main contributions. First, using a transparent differencing strategy that exploits the grade-specific roll-out of the reform, we show evidence of general equilibrium sorting effects: Improvements in public school quality caused marked reductions in local private school shares, consequent changes in public school demographics, and significant increases in local house prices — the latter indicative of the reform’s full impact. Second, using a generalization of the differencing approach, we provide credible estimates of the direct and indirect impacts of the reform on a common scale. These reveal a large pure class size effect of 0.11 SD (in terms of mathematics scores), and an even larger indirect effect of 0.16 SD via induced changes in school demographics. Further, we show that both effects persist positively, giving rise to an overall policy impact estimated to be 0.4 SD higher after four years of treatment (relative to none). The analysis draws attention, more broadly, to conditions under which the indirect sorting effects of major reforms are likely to be first order.

‘Education and Borrowing Constraints: An Analysis of Alternative Allocation Systems,’ Fernandez, R., 2008.

This paper compares the allocative properties of markets and exams in an environment in which students differ in wealth and ability and schools differ in quality. In the presence of borrowing constraints, exams are shown to dominate markets in terms of matching efficiency. Whether aggregate consumption is greater under exams than under markets depends on the power of the exam technology; for a sufficiently powerful test, exams dominate markets in terms of aggregate consumption as well. The effects of income taxation are analyzed and the optimal allocation scheme when wealth is observable is derived. The latter consists of allowing markets to set school prices but having the government allocate fellowships based both on financial need and exam score.

‘Learning and Mechanism Design: An Experimental Test of School Matching Mechanisms with Intergenerational Advice,’ Schotter, A. (with T. Ding), 2015.

The results of this paper should be taken as a cautionary tale by mechanism designers. While the mechanisms that economists design are typically in the form of static one-shot games, in the real world mechanisms are used repeatedly by generations of agents who engage in the mechanism for a short period of time and then pass on advice to their successors. Hence, behavior evolves via social learning and may diverge dramatically from that envisioned by the designer. We demonstrate that this is true of school matching mechanisms, even those, like the Gale-Shapley Deferred-Acceptance mechanism where truth-telling is a dominant strategy.

‘Matching and Chatting: An Experimental Study of the Impact of Network Communication on School-Matching Mechanisms,’ Schotter, A. (with T. Ding), 2016.

While, in theory, the school matching problem is a static non-cooperative one shot game, in reality the “matching game” is played by parents who choose their strategies after consulting or chatting with other parents in their social networks. In this paper we compare the performance of the Boston and the Gale-Shapley mechanisms in the presence of chatting through social networks. Our results indicate that allowing subjects to chat has an important impact on the likelihood that subjects change their strategies and also on the welfare and stability of the outcomes determined by the mechanism.

‘Genes, Education, and Labor Market Outcomes: Evidence from the Health and Retirement Study,’ Thom, K. (with N.W. Papageorge), 2016.

Recent advances have led to the discovery of specific genetic variants that predict educational attainment. We study how these variants, summarized as a genetic score variable, are associated with human capital accumulation and labor market outcomes in the Health and Retirement Study (HRS). We demonstrate that the same genetic score that predicts education is also associated with higher wages, but only among individuals with a college education. Moreover, the genetic gradient in wages has grown in more recent birth cohorts, consistent with interactions between technological change and labor market ability. We also show that individuals who grew up in economically disadvantaged households are less likely to go to college when compared to individuals with the same genetic score, but from higher-SES households. Our findings provide support for the idea that childhood SES is an important moderator of the economic returns to genetic endowments. Moreover, the finding that childhood poverty limits the educational attainment of high-ability individuals suggests the existence of unrealized human potential.

‘Genetic Ability, Wealth, and Financial Decision-Making,’ Thom, K. (with D. Bath, and N.W. Papageorge), 2017.

Recent advances in behavioral genetics have enabled the discovery of genetic scores linked to a variety of economic outcomes, including education. We build on this progress to demonstrate that the same genetic variants that predict educational attainment independently predict household wealth in the Health and Retirement Study (HRS). This relationship is partly explained by higher earnings, but a substantial portion of this association cannot be explained mechanically by income flows or bequests. This leads us to explore the role of beliefs, financial literacy and portfolio decisions in explaining this genetic gradient in wealth. We show that individuals with lower genetic scores are more prone to reporting “extreme beliefs” (e.g., reporting that there is a 100% chance of a stock market decline in the near future) and they invest their savings accordingly (e.g., avoiding the stock market). Our findings suggest that genetic factors that promote human capital accumulation contribute to wealth disparities not only through education and higher earnings, but also through their impact on the ability to process information and make good financial decisions. The association between genetic ability and wealth is substantially lower among households receiving a defined benefit pension. Policies that transfer greater responsibility to individuals to manage their wealth might therefore exacerbate the consequences of labor market inequality.

‘Turnover Liquidity and the Transmission of Monetary Policy,’ Lagos, R. (with S. Zhang), 2018.

We study the severity of liquidity constraints in the U.S. housing market using a life-cycle model with uninsurable idiosyncratic risks in which houses are illiquid, but agents have the option to extract home equity by refinancing their long-term mortgages. The model implies that three quarters of homeowners are liquidity constrained and willing to pay an average of 5 cents to extract an additional dollar of liquidity from their home. Most homeowners value liquidity for precautionary reasons, anticipating the possibility of income declines and the need to make mortgage payments in future periods. Mortgage assistance policies structured as credit lines to homeowners who experience a shortfall in income greatly reduce the severity of liquidity constraints.

‘Stress Tests and Bank Portfolio Choice,’ Williams, B., 2017.

How informative should bank stress tests be? I use Bayesian persuasion to formalize stress tests and show that regulators can reduce the likelihood of a bank run by performing tests which are only partially informative. Optimal stress tests give just enough failing grades to keep passing grades credible enough to avoid runs. The worse the state of the banking system, the more stringent stress tests must be to prevent runs. I find that optimal stress tests, by reducing the probability of runs, reduce the optimal level of banks’ liquidity cushions. I also examine the impact of anticipated stress tests on banks’ ex ante incentive to invest in risky versus safe assets.