Critics of school choice argue that when private schools compete with public schools, they select the best public school students (cream-skim), increasing socioeconomic segregation. I study the mechanisms that underlie student sorting in a mixed public-private system using a 2008 education reform implemented in Chile aimed at decreasing education inequality. Specifically, I exploit the shock to schools' incentives to test for whether schools select students based on socioeconomic characteristics. I show that low-SES parents' school choices are restricted by private school cream-skimming behavior. I estimate a demand model incorporating these admissions restrictions to capture parents' preferences for different school characteristics and peer composition. I show that ignoring cream-skimming leads to underestimating poor parents' preferences for school quality. My model shows that heterogeneous parental preferences for high-SES peers seem to be the main driver behind socioeconomic segregation. I find that the decrease in cream-skimming induced by Chile's reform led to lower public school enrollment, and that strong preferences for high-SES peers drove increased enrollment in schools that opted out of the reform. Overall, this led to increased segregation, especially in more competitive markets.
Ana Gazmuri, “School Segregation in the Presence of Student Sorting and Cream-Skimming: Evidence from a School Voucher Reform”, September 2017.