Socioeconomic Quality Elasticity Gradient
Standard market models assume uniform quality elasticity across socioeconomic groups, ignoring how family income and student baseline academic ability systematically alter demand for school test scores. Without accounting for these interaction effects, choice policies miscalculate demand responses across disadvantaged populations.
Picture this
Consider buying cars: high-income buyers with advanced driving skills look closely at vehicle safety ratings and engine performance, whereas lower-income buyers focus primarily on local dealership distance and baseline affordability. As baseline skill and income increase, sensitivity to product quality ratings grows stronger.
What the evidence says
Interaction coefficients between student baseline score and school score are positive across all subgroups (0.378–0.587 for non-lunch white, 0.379–0.451 for non-lunch non-white, 0.152–0.309 for lunch white, 0.243–0.379 for lunch non-white). Interaction of neighborhood income with school score is also consistently positive (0.004 to 0.017 logit points per $1,000 above mean income).
- Who
- N = 36,887 human students in grades 4–8 (2,342,254 student-school choice pairs) in Charlotte-Mecklenburg Schools, North Carolina.
- How
- Exploded-mixed-logit demand estimation incorporating interaction terms between school average test scores, student baseline test scores, and neighborhood median household income.
What to do
Incorporate interaction terms between user baseline ability and income when modeling demand elasticity for public services.
From the source
"The positive interactions with school score indicate that the average weight placed on school score increased with both neighborhood income and the student's baseline test score for parents of students in all four subgroups."
Heterogeneous Preferences and the Efficacy of Public School Choice