Manipulable Variables of Policy Importance: The Case of Education

Within the past several years, there has emerged a growing body of empirical evidence that suggests greater market competition among schools has resulted in higher student academic achievement. Such a conclusion, however, may be viewed by some to be uncertain given the potential bias and inconsistency in the estimated coefficient on market competition that would result from a failure to recognize the endogeneity of market competition in the estimation of student achievement. This study corrects for the potential bias and inconsistency in the estimated coefficient on market competition by constructing a system of equations within which student achievement and market competition are explicitly endogenous.The results, first, suggest that researchers should indeed recognize the simultaneous relationship between student achievement and the degree of market competition in educational studies of student achievement and, second, confirm previous suggestions that policy-makers who seek to improve student academic achievement should construct policies that encourage market competition among schools.