Class Size And Sorting In Market Equilibrium: Theory And Evidence

This paper examines how schools choose class size and how households sort in response to those choices. The model offers an explanation for two distinct empirical patterns observed among private schools that accept government vouchers: There is an inverted-U relationship between class size and household income in equilibrium, which will tend to bias cross-sectional estimates of the effect of class size on student performance. Some schools at the class size cap adjust prices (or enrollments) to avoid adding another classroom, which produces stacking at enrollments that are multiples of the class size caps.