Postprint version. Published in Applied Economics, Volume 29, Issue 5, May 1, 1997, pages 617-626.
This paper develops a model of public exchange whereby voters and education policy makers exchange with one another within school districts. Because school district consolidation lowers alternatives to voters-parents, consolidation is hypothesized to raise public education spending because weakened intergovernmental competition allows policy makers to promote their own utility, rather than that of constituents. Models of public education spending and academic performance are estimated over 1988-1990. While evidence indicates little support for the traditional treatment of the Leviathan hypothesis that greater competition lowers public spending, this paper argues that education spending by itself does not fully provide a valid test of the Leviathan hypothesis since spending, by itself, does not necessarily indicate the quality of public education programmes. Empirical evidence indicates that greater numbers of schools and school districts promote higher student achievement as evidenced by higher math and verbal SAT scores, math proficiency of 8th graders, and lower high school drop-out rates. Evidence therefore suggests that, while greater numbers of school districts and schools are, to some degree, associated with higher public education spending, higher student achievement appears to follow as well.