In light of the dismal academic performance of public schools in urban school districts, charter schools provide families with additional school choices. Charters are formed from a successful combination of private initiative and the institutional regulations of the policymaker. In Washington, D.C. more than 40 percent of school-age children in the public system attend charter schools. Hence, in this paper we investigate charter school entry and household choice of school, and study the case of Washington, D.C. We document the pattern of charter school entry in the city by geographic area, thematic focus and grade level in order to gain insights about the opportunities exploited by charters. Building on these insights we explore how households sort among public, private and charter schools. We also study the effects that the entry, exit or relocation of a school has on others. Finally, we explore how the educational landscape would change in response to changes in the regulatory framework for charter, public and private schools. This question is particularly relevant given the current focus of federal policy on charter expansion.

For our analysis we develop and estimate an equilibrium model of household school choice, charter school entry and school competition in a large urban school district. Since charter funding is connected with enrollment, we model how prospective entrants predict enrollment and peer characteristics of their student body as a function of their geographic location, grades served and thematic focus. The prospective entrant enters or not depending on the expected success of its entry and subsequent financial viability. We model the entrant as being uncertain about its own quality at the entry stage, and model charter authorizer as the agency who regulates the charter industry.

We estimate the model using a unique and detailed data set from Washington D.C. from 2003 to 2007. The main data set consists of information for all public, private and charter schools in Washington, D.C. including enrollment by grade, school demographics, thematic focus and proficiency rates in standardized tests. We estimate the model in three stages corresponding to demand, supply and proficiency rates.

Currently we have estimated the demand and achievement sides of the model. Our estimates reveal large heterogeneity in preferences over school types on the part of households as well in school quality. In addition, they reveal substantial achievement differences depending on school type and level, and large variation in school value added. Such heterogeneity in household preferences and access to desirable schools creates rich opportunities for charter entry. According to our current counterfactuals, if charter schools were no longer allowed to operate most of their students would switch to public or low-tuition Catholic schools. Most of those switching into public schools would experience achievement losses. In future counterfactuals we will explore the effect of policy changes that would likely affect charter entry, such as greater availability of building sites and changes in charter school funding.