Abstract
We exploit a natural experiment to test whether school closure threats can increase staff effort and improve performance. The Hong Kong government overestimated post-1997-Handover mainland Chinese immigration and local births, creating excess capacity in many school districts. In 2003, with student enrollment falling to new lows (increasing cost per student), the government announced that it would close schools that were unable to recruit enough students. Since schools compete for students within their own district, the accidental excess capacity created closure threats that varied by district. Difference-in-differences analyses show that after initiation of this policy, student scores in heavily overbuilt districts were lower than scores in other districts and lowest in districts with the fewest students per class. Although closure threats were counterproductive for improving performance, the school closures eventually improved overall school quality, as typically, the lowest performing schools in each district closed.
Funding statement: This work was funded by the Institute of Finance and Banking at Seoul National University, Seoul National University Research Grant (for Humanities and Social Sciences), and Institute of Management Research, Seoul National University.
Acknowledgments
We thank the Hong Kong Education Manpower Bureau personnel for providing data for this project. We appreciate the helpful comments of David Autor, Russell Pittman, Hyung Kwon Jeong, Inho Lee, Yuk Yung Li, Keunkwan Ryu, and seminar participants at Asian Meeting of Econometrics Society, Seoul National University, Korea University, and City University of Hong Kong. We also appreciate the research assistance of Yik Ting Choi. Joh appreciates the Seoul National University Research Grant (for Humanities and Social Sciences) and the grants from Institute of Management Research and Institute of Finance and Banking at Seoul National University.
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