Please rotate your device to landscape mode to view the charts.

Upping the Ante: The Equilibrium Effects of Unconditional Grants to Private Schools

Journal: American Economic Review

Date: 20201001

Author: Andrabi, Tahir; Das, Jishnu; Khwaja, Asim I.; Ozyurt, Selcuk; Singh, Niharika

Abstract:
We assess whether financing can help private schools, which now account for one-third of primary school enrollment in low- and middle-income countries. Our experiment allocated unconditional cash grants to either one (L) or all (H) private schools in a village. In both arms, enrollment and revenues increased, leading to above- market returns. However, test scores increased only in H schools, accompanied by higher fees, and a greater focus on teachers. We provide a model demonstrating that market forces can provide endogenous incentives to increase quality and increased financial saturation can be used to leverage competition, generating socially desirable outcomes.

Link: Google Scholar

Key Findings

Financial Returns

Unconditional grants of Rs.50,000 to private schools generated strong returns between 37-58%, substantially higher than market lending rates of 15-20%.

Differential Strategy

High-saturation villages (all schools received grants) focused on quality improvements with increased test scores and fees, while low-saturation villages (single school grants) focused on expanding capacity.

Teacher Investment

High-saturation schools increased teacher salaries by 18-22% and hired more new teachers, while low-saturation schools primarily invested in infrastructure.

Revenue and Enrollment Impacts

  • High-saturation schools gained Rs.65,813 in annual posted revenues
  • Low-saturation treated schools gained Rs.127,987 in annual posted revenues
  • Enrollment increased by 9 children in high-saturation and 22 in low-saturation schools

Test Scores and Fee Changes

  • High-saturation schools increased test scores by 0.153 standard deviations
  • Monthly fees increased by Rs.18.8 (8%) in high-saturation schools
  • No significant changes in test scores or fees for low-saturation schools

Teacher Compensation

  • High-saturation schools increased annual wage bill by Rs.32,983
  • Monthly salary increased by Rs.580 for new teachers
  • Monthly salary increased by Rs.492 for existing teachers

Contribution and Implications

  • Demonstrates that competitive market forces can provide endogenous incentives for quality improvements in private schools
  • Suggests policy value in high-saturation financing approaches that enhance market competition
  • Provides evidence that unconditional grants can improve educational outcomes without intensive monitoring

Data Sources

  • Revenue and enrollment data from Table 4 and Table 5
  • Test score impacts from Table 6
  • Teacher compensation data from Table 8