Promoting School Competition Through School Choice: A Market Design Approach
We study the effect of different school choice mechanisms on schools' incentives for quality improvement. To do so, we introduce the following criterion: A mechanism
respects improvements of school quality if each school becomes weakly better whenever that school improves and thereby becomes more preferred by students. We
first show that no stable mechanism, or mechanism that is Pareto efficient for students (such as the Boston and top trading cycles mechanisms), respects improvements of
school quality. Nevertheless, for large school districts, we demonstrate that any stable mechanism approximately respects improvements of school quality; by contrast, the
Boston and top trading cycles mechanisms fail to do so. Thus a stable mechanism may provide better incentives for schools to improve themselves than the Boston and top
trading cycles mechanisms.