DP3358 Private versus Public Schools in Post-Apartheid South African Cities: Theory and Policy Implications

Author(s): Harris Selod, Yves Zenou
Publication Date: May 2002
Keyword(s): busing, education externalities, fees, urban segregation, vouchers
JEL(s): H20, I20, R14
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3358

Black and white families are heterogenous both in income and ability and simultaneously decide where to locate in the city and which school (private or public) to send their children. We show that, in equilibrium, despite the tuition fees imposed by whites, some black pupils may attend the private school. In fact three different equilibrium regimes can occur: either all, some, or none of the black pupils attend the private school. In all three cases, white families reside close to the private school attended by their children whereas black families locate further away. This market solution is shown not to be optimal, one of the reasons being that whites overprice education in order to limit black attendance at the private school, protecting their children from negative human capital externalities. Three types of education policies publicly financed by an income tax are then considered: transportation subsidies, private-school vouchers and public school spending. The efficiency of such policies depends on the fee-setting behaviour of whites, which strongly varies from one policy to another.