We test for ﬁnancial constraints as a market failure in education in a low-income country by experimentally allocating unconditional cash grants to either one (L) or to all (H) private schools in a village. Enrollment increases in both treatments, accompanied by infrastructure investments. However, test scores and fees only increase in H along with higher teacher wages. This diﬀerential impact follows from a canonical oligopoly model with capacity constraints and endogenous quality: greater ﬁnancial saturation crowds-in quality investments. Higher social surplus in H, but greater private returns in L underscores the importance of leveraging market structure in designing educational subsidies.
This work is part of the Department for International Development’s ‘Research on Improving Systems of Education’ (RISE) Programme
Andrabi, T.; Das, A.I.; Ozyurt, S.; Singh, N. (2018). Upping the Ante: The Equilibrium Effects of Unconditional Grants to Private Schools. RISE Working Paper 18/023