Does strategic interaction affect demand for school places? A conditional efficiency approach

This paper provides evidence on strategic interaction among public schools. We adopt a two-stage estimation procedure to assess whether competition among public schools influences demand for places. A robust conditional order-m approach is used to estimate the efficiency of each school; a spatial econometric framework is then applied to disentangle the determinants of demand for the school when strategic interaction among parents is present. We detect the presence of positive spatial autocorrelation in the demand for public schools, but the magnitude of the spillover effects drops when neighboring school performance is added in. Our results confirm the existence of competitive pressures among public schools’ performance that we also infer from parents’ school choices.