The Crowding Out Effect

What happens to parental expenditure on education when the government steps in to subsidize schooling? AdamSmithee has the answer.

This paper examines a dataset from Zambia which suggests "household educational expenditures and school cash grants are substitutes with a coeffcient of elasticity between -0.35 and -0.52." As a result, anticipated cash grants "have no impact on cognitive achievement, but unanticipated funds lead to significant improvements in learning."

The policy conclusion is clearly that crash grant allocation decisions should be random. The M&E problem? A randomized trial (the sort done on Mexico's Progressa program) of the impact of cash grants on schools would find a significant impact. But when the results were used as justification to give grants to all schools, the impact would disappear.

Not the most encouraging of conclusions for advocates of increased education expenditure as a solution to ... well, anything, really, other than the further depletion of already threadbare government coffers.