Capitalization Under School Choice Programs: Are the Winners Really the Losers?

This paper examines the capitalization effects of public school choice programs. Under an inter-district choice program, one would expect changes in local property values caused by the weakening of local monopolies for the provision of free schooling. Using data from Minnesota, I find that property values decline in desirable districts that accept transfer students, whereas property values increase in districts where students are able to transfer to preferred districts. The capitalization effects are of sufficient magnitude that a district losing (gaining) students because of transferring may not actually lose (gain) much financially, or may even have a moderate gain (loss), as a result of school choice. These effects may undermine attempts to use a school choice program as a means of financially punishing or rewarding districts based on preexisting differences in popularity