Good Principals or Good Peers: Parental Valuation of School Characteristics, Tiebout Equilibrium, an
School choice policies may, by aligning administrators’ incentives with parental demand, yield improved efﬁciency in educational production (Milton Friedman, 1962; John E. Chubb and Terry M. Moe, 1990). But Eric A. Hanushek (1981) cautions: “If the efﬁciency of our school systems is due to poor incentives for teachers and administrators coupled with poor decision-making by consumers, it would be unwise to expect much from programs that seek to strengthen ‘market forces’ in the selection of schools” (p. 35, emphasis added). Poor decision-making is not required; parents may rationally choose schools with “pleasant surroundings, athletic facilities, cultural advantages” (ibid., p. 34) over those that most efﬁciently pursue academic performance; they may prefer poorly run schools with good peer groups over those that are more effective but enroll worse students (J. Douglas Willms and Frank H. Echols, 1992, 1993); or they may simply be unable to identify effective schools (Thomas J. Kane and Douglas O. Staiger, 2002). Any factor that leads parents to choose any but the most effective available schools will tend to dilute the incentives for efﬁcient management that choice might otherwise create.
This study examines the distribution of student outcomes across schools within metropolitan housing markets for evidence on parental demand. Economists have long noted that parents’ choices among residential locations are potentially informative about how more complete choice systems may operate (Charles M. Tiebout, 1956; Melvin V. Borland and Roy M. Howsen, 1992; Caroline M. Hoxby, 2000; Rothstein, 2005). I ask whether school effectiveness plays a sufﬁciently important role in these decisions to create meaningful incentives for more productive school management.