This paper uses a structural model of school choice and academic achievement to study the demand for charter schools in Boston, Massachusetts, with an emphasis on comparative advantage in school choice. It combines an optimal portfolio choice model of charter school application and attendance decisions with a selection correction approach that links students' school choices to the achievement gains generated by charter attendance.
To estimate the model, the author uses instrumental variables derived from randomized entrance lotteries, together with a second set of instruments based on distance to charter schools. The estimates show that charter schools reduce achievement gaps between high- and low-achieving groups, so disadvantaged students and low-achievers have a comparative advantage in the charter sector.
Higher-income students and students with high prior achievement have the strongest demand for charter schools, however, which implies that preferences for charters are inversely related to potential achievement gains. The structural estimates show a similar pattern of selection on unobservables. These findings imply that students do not sort into charter schools on the basis of comparative advantage in academic achievement; instead, disadvantaged students are less likely to apply to charter schools despite larger potential achievement gains.
The study uses simulations of an equilibrium school choice model to quantify the consequences of this demand-side pattern for the effects of charter school expansion. The results suggest that in the absence of significant behavioral or institutional changes, the effects of charter expansion may be limited as much by demand as by supply.