Private competition and market characteristics: evidence from public school efficiency

The traditional market structure paradigm does not fully identify all components that determine the true degree and complexity of a market's existing competition. Recently, researchers have redefined market structures and market competition using geographic spatial tools We follow this approach in developing a school competition index (SCI) for the state of Mississippi to define the K-12 market and to measure the competition public schools face from private schools. We separate religious private schools from non-religious private schools as an important market characteristic and create two variables to capture the degree of competition each public school faces from peer religious and non-religious private schools spatially located within their local market area. Results from two-stage stochastic frontier analysis indicate that private schools with a religious affiliation significantly increase public schools' performance. The results also suggest that students' race and their socio-economic standard significantly reduce public school efficiency. We conclude that policymakers should consider competition-based school reform policies to increase public school outcomes.