A Model of Vertically Differentiated Education

Matthias R. Effinger, Mattias K. Polborn

Research output: Contribution to journalArticlepeer-review


We analyze the allocation of students who differ in their ability to two school types. We assume that there are peer effects (students learn more the better their classmates) and that the expected income after school also depends on the average productivity of peers. We derive the allocation under free school choice and decentralized determination of the academic level; we show that, compared to the social optimum, the level is suboptimal and too many students attend the better school type. A social planner can improve on the allocation under free school choice by prescribing a higher academic level.

Original languageEnglish (US)
Pages (from-to)53-69
Number of pages17
JournalJournal of Economics/ Zeitschrift fur Nationalokonomie
Issue number1
StatePublished - 1999


  • Decentralization
  • Education
  • Externalities
  • Vertical differentiation

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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