John Yinger

Revisiting economies of size in American education: are we any closer to a consensus?

Abstract Consolidation remains a common policy recommendation of state governments looking to improve efficiency, especially in rural school districts. However, state policies encouraging consolidation have increasingly been challenged as fostering learning environments that hurt student performance. Does the empirical research on economies of size support for this policy? The objective of this paper is to define the factors affecting economies of size and update the literature since 1980. The best of the cost function studies suggest that sizeable potential cost savings in instructional and administrative costs may exist by moving from a very small district (500 or fewer pupils) to a district with ca 2000–4000 pupils. The findings from production function studies of schools are less consistent, but there is some evidence that moderately sized elementary schools (300–500 students) and high schools (600–900 students) may optimally balance economies of size with the potential negative effects of large schools. Since program evaluation research on school consolidation is limited, it is time for researchers on both sides of this debate to make good evaluation research on consolidation a high priority. In addition, the potential diseconomies of size in large central city school districts needs increased attention in academic research.

Chapter 47 Sorting and voting: A review of the literature on urban public finance

This chapter reviews the literature on the boundary between urban economics and local public finance, defined as research that considers both a housing market and the market for local public services. The first part of the chapter considers positive theories. This part presents the consensus model of the allocation of households to jurisdictions, which is built on bid functions and household sorting, as well as alternative approaches to this issue. It also examines models of local tax and spending decisions, which exhibit no consensus, and reviews research in which both housing and local fiscal variables are endogenous. The second part of the chapter considers empirical research, with a focus on tax and service capitalization, on household heterogeneity within jurisdictions, and on the impact of zoning. The third part considers normative theories about a decentralized system of local governments. This part examines the extent to which such a system leads to an efficient allocation of households to communities or efficient local public service levels, and it discusses the fairness of local public spending. This review shows that the bidding/sorting framework is strongly supported by the evidence and has wide applicability in countries with decentralized governmental systems. In contrast, models of local public service determination depend on institutional detail, and their connections with housing markets have been largely unexplored in empirical work. Ever since Tiebout (1956), many scholars have argued that decentralized local governments have efficiency advantages over centralized forms. However, a general treatment of this issue identifies four key sources of inefficiency even in a decentralized system: misallocation of households to communities, the property tax, public service capitalization and heterogeneity. Few policies to eliminate these sources of inefficiency have yet been identified. Finally, this review explores the equity implications of household sorting and other features of a decentralized system.

Capitalization and the Theory of Local Public Finance

The Tiebout literature is incomplete, this paper argues, because it has not fully accounted for the capitalization of local fiscal variables into house values. The paper explains why capitalization arises, why it persists in long-run equilibrium, how it affects both residential location and the outcome of local voting, and why it interferes with the efficiency of a system of local governments. The analysis, which is based on the main Tiebout assumptions plus a property tax, combines a model of household bids in a housing market with a median-voter model of local public service determination.

Racial prejudice and racial residential segregation in an urban model

Abstract In this paper, racial prejudice is introduced into an urban model and results about racial discrimination and residential segregation are derived. To be specific, a household maximization problem is used to determine the market rent-distance function that gives no household an incentive to move. Prejudice is introduced by assuming that the racial composition of a location affects a households utility and by deriving, for both blacks and whites, rent-distance functions that reflect racial composition. These rent-distance functions imply that if whites prefer segregation and some blacks prefer integration, no stable locational equilibrium exists for both races without discrimination.

The No Child Left Behind Act Have Federal Funds Been Left Behind

The federal No Child Left Behind Act (NCLB) imposes new requirements on state education systems and provides additional education funding. This article estimates education cost functions, predicts the spending required to support NCLB standards, and compares this spending with the funding available through NCLB. This analysis is conducted for Kansas and Missouri, which have similar education environments but very different standards. We find that new federal funding is sufficient to support very low standards for student performance, but cannot come close to funding high standards without implausibly large increases in school-district efficiency. Because of the limited federal funding and the severe penalties in NCLB when a school does not meet its states standards, states have a strong incentive to keep their standards low. NCLB needs to be reformed so that it will encourage high standards.

Why is it so hard to help central city schools

Many states have implemented educational grant systems designed to provide more aid to school districts that are, by some standard, in greater need. Nevertheless, many if not most central city school systems continue to produce poor educational outcomes, as measured, for example, by test scores and dropout rates. Using data from New York State, this article asks why existing aid formulas fail to provide the assistance that central city school districts need to bring their educational outcomes up to reasonable standards. Two principal explanations are explored: the failure of existing aid programs to recognize the high cost of providing education in central cities and the possibility that aid simply makes central cities less efficient without raising educational outcomes. The article presents aid programs that account for costs, but shows that these revised programs will do little to help central cities without at least one politically unpopular provision, namely a large state budget or a high required local property tax rate. The article also estimates the extent to which increased aid to central cities leads to their less efficient operation, thereby undermining the objective of improved educational outcomes for central city students. The article concludes by listing the steps that a state can take to help central city schools and by discussing the yet unresolved problems that arise in helping these districts.

The Case for Equalizing Aid

Equalizing aid can be used by the federal government to equalize fiscal outcomes or resources among subnational governments or by states to equalize outcomes or resources among local governments. The primary focus of this paper is on financial equity.

Does School District Consolidation Cut Costs

Consolidation has dramatically reduced the number of school districts in the United States. Using data from rural school districts in New York, this article provides the first direct estimation of consolidations cost impacts. We find economies of size in operating spending: all else equal, doubling enrollment cuts operating costs per pupil by 61.7 percent for a 300-pupil district and by 49.6 percent for a 1,500-pupil district. Consolidation also involves large adjustment costs, however. These adjustment costs, which are particularly large for capital spending, lower net cost savings to 31.5 percent and 14.4 percent for a 300-pupil and a 1,500-pupil district, respectively. Overall, consolidation makes fiscal sense, particularly for very small districts, but states should avoid subsidizing unwarranted capital projects.

Housing discrimination is still worth worrying about

Abstract Several scholars claim that racial and ethnic discrimination in housing is now relatively infrequent and has little impact on the lives of black and Hispanic households. They conclude that money spent on fair housing enforcement will do little or nothing to help people in these groups. This article examines these claims. The article concludes that these claims are not consistent with the evidence, which shows that discrimination in housing is still a common experience for blacks and Hispanics and that the cost of discrimination is still high. Moreover, discrimination constrains the opportunities of people in these groups to go to good schools, to find jobs, and to accumulate home equity. Thus, improved enforcement of fair housing legislation not only promotes principles that are at the heart of our democracy but also attacks one pillar of the system that perpetuates large intergroup disparities in earnings and wealth.

An analysis of returns to scale in public production, with an application to fire protection

Abstract This paper analyzes returns to scale in public production. Existing studies fail to differentiate among three dimensions of scale: service quality, the level of governmental activity, and the number of people served. A fourth dimension, economies of scope, is need for agencies that provide multiple services. This paper provides a formal definition of returns to scale for each dimension. This framework is applied to fire protection, using a translog cost function with two services, fire prevention and fire suppression. The results indicate economies of scope, increasing returns to quality scale, and constant returns to population scale.