School competition and efficiency in elementary schools in Mexico

This paper examines how competition impacts the technical efficiency of schools. We model competition between schools using Geographical Information System (GIS) tools in order to develop a Herfindahl-Hirschman market concentration index (HHI) and then follow a stochastic frontier analysis with alternative specifications that enable us to obtain the best unbiased efficient estimators. We find three important results. First, a higher degree of competition from public and private schools significantly increases elementary school efficiency in Mexico, as measured by the outcomes in a nationwide standardized test. Second, we find a positive, though small, association between expenditure on education and school outputs. Third, private schools perform significantly better due to the differential incentives they face in terms of competition.