IZA DP No. 1336: Diploma No Problem: Can Private Schools Be of Lower Quality than Public Schools?
published as 'Educational standards in private and public schools' in: The Economic Journal, 2008, 118 (533), 1866-1887
Motivated by anecdotal as well as econometric evidence from Italy, we ask whether private schools can provide lower quality than public schools. Using a stylized model of the education market with sequential entry of a public and a private school, we show that, depending on the underlying parameters of the model, a market structure with the private school offering at a positive price lower quality than the public school can be an equilibrium. The calibrated parameters for Italy suggest the existence of such an equilibrium in the Italian market for education.