Choice and Efficiency in Education: New Perspective on the Tiebout Model

Abstract

The aspiration to achieve universal access to quality education for all is often accompanied by the challenge of efficiency. Commonly, public good provision (e.g., education) is perceived as less efficient than private markets (Samuelson PA, Rev Econ Stat 36:387-389, 1954). The literature on the relationship between locational choice and efficiency reveals a positive relationship, using the ratio of achievement and per student public expenditures as indicators of educational efficiency (e.g., Hoxby CM, Am Econ Rev 90:1209-1238, 2000; Muralidharan K, Sundararaman V, Q J Econ 130:1011-1066, 2015). Not looking at household expenditure on private tutoring from an efficiency measurement might lead to biased results and a misleading understanding on the relationship between choice and efficiency. This work examines the relationships between the degree of location-based choice and the efficiency of education markets (Hoxby CM, J Econ Perspect 10:51-72, 1996; Rothstein J, Am Econ Rev 97:2026-2037, 2007; Tiebout CM, J Polit Econ 64:416-424, 1956). Furthermore, this work develops an innovative indicator for measuring efficiency, using the ratio between achievement and the overall educational expenditures (i.e., household and public expenditure on education). Data sets from the Israeli longitudinal nation-wide survey are analyzed. Using Generalized Method of Moments (GMM) regression models (Chen X, Hong H, Tarozzi A, Semiparametric efficiency in GMM models of nonclassical measurement errors, missing data and treatment effects. Cowles Foundation for Research in Economics, Yale University, New Haven, 2008. Retrieved from http://cowles.yale.edu/sites/default/files/files/pub/d16/d1644.pdf; Hansen L, Econometrica 50:1029-1054, 1982) and the Simpsons bio-diversity index as an instrumental variable (IV) (Simpson EH, Nature 163:688, 1949; White MJ, Popul Index 46:198-221, 1986), the impact of choice on efficiency is analyzed. Using a new indicator for efficiency, the findings reveal a lower impact of choice on efficiency (compared with traditional efficiency indicators). Our findings might assist policy-makers in other countries who aspire to increase educational efficiency , and understand why choice might not be the way to do so.