Postprint version. Published in Applied Economics, Volume 42, Issue 1, January 1, 2010, pages 11-22.
School choice reform refers to changes that allow parents greater freedom to choose schools for their children. School choice reform is contentious because it fundamentally alters the environment in which public and private schools operate and could result in significant changes for both demanders and suppliers of education. This article develops a model of public education with imperfect exit to predict how private school enrollment influences performance of public schools. Empirical evidence from data on all private and public schools in California provides substantial support for the hypothesis that public school test scores are inversely related to private school enrollments and charter school enrollments when private and charter schooling reflects exiting by parents unhappy with local public schools. Implications regarding how expanded private school choice might influence public school performance in California and elsewhere are discussed.