The allocation of educational resources to students of different socio-economic backgrounds has important policy implications since it affects individual educational outcomes as well as the future distribution of human capital. In this paper, we present a theoretical model showing that local school administrators have an incentive to allocate…

Analyzes pupil-specific public school data from the 1988 National Education Longitudinal Study. Applies instrumental-variable econometric methods to account for nonrandom allocation of students to different class sizes and the endogenous class-size variable. Improved data and statistical techniques indicate returns to investing in smaller classes…