Inside the house of learning: the relative performance of public and private schools in Orissa

Empirical evidence shows that the quality of learning in public schools is very low in India. There is also a robust belief that private schools offer better-quality learning at a lower cost and are a cost-effective alternative to public schools. Most of the evidence on which this latter claim is based does not correct for selection bias - students who go to private schools may differ systematically from students who go to public schools on observable and unobservable characteristics. In this context, it is entirely plausible that public schools may be no worse or even better than private schools although the latter may still be more cost-effective. In this paper, we use a strategy suggested by Altonji, Elder, and Taber to estimate selection bias in the positive private school effect on test scores. We use test scores data on Grade Four students attending public and private schools in the eastern state of Orissa in India. Our findings suggest that there is a true private school effect as only 12-13% of the adjusted test score difference is due to selection on unobserved factors.