The equilibrium effects of grants to public schools

Abstract: We study the effects of a policy that distributed large cash grants through school councils to public schools in rural Pakistan. Using a village-level randomized control trial, we identify the medium-term equilibrium effects of this policy in a marketplace where the private sector is large, and there is substantial school choice. Learning increases in both the public and private sectors. Private school improvements appear to be driven by competitive pressures: private schools located closer to public schools experience larger improvements. Failing to measure learning improvements in the private sector reduces cost-effectiveness estimates by 42%. Our findings suggest that, through public sector investment, the government can leverage choice and market structure to improve students’ outcomes.

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• International Policy Center