Blacks and whites have different incomes, decide where to locate in the city and which school to send their children to. We show that, despite the tuition fees imposed by whites and their remote location, some black pupils attend the private school. This market solution is shown not to be optimal because whites overprice education in order to limit black attendance at the private school. Three types of education policies are then considered: transportation subsidies, private-school vouchers and public-school spending. The efficiency of such policies depends on the fee-setting behavior of whites that strongly varies from one policy to another.
- Education externalities
- Urban segregation