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School quality and grade completion by students are shown to be directly linked, leading to very different perspectives on educational policy in developing countries. Unique panel data on primary school age children in Egypt permit estimation of behavioral models of school leaving. Students perceive differences in school quality, measured as expected achievement improvements in a given school, and act on it. Specifically, holding constant the student's own ability and achievement, a student is much less likely to remain in school if attending a low quality school rather than a high quality school. This individually rationale behavior suggests that common arguments about a trade-off between quality and access to schools may misstate the real issue and lead to public investment in too little quality. Further, because of this behavioral linkage, there is an achievement bias such that common estimates of rates of return to years of school will be overstated. The paper demonstrates the analytical importance of employing output-based measures of school quality. (Contains 29 footnotes.)

Substantial uncertainty exists about the impact of school quality on the black-white achievement gap. Our results, based on both Texas Schools Project (TSP) administrative data and the Early Childhood Longitudinal Survey (ECLS), differ noticeably from other recent analyses of the black-white achievement gap by providing strong evidence that schools have a substantial effect on the differential. The majority of the expansion of the achievement gap with age occurs between rather than within schools, and specific school and peer factors exert a significant effect on the growth in the achievement gap. Unequal distributions of inexperienced teachers and of racial concentrations in schools can explain all of the increased achievement gap between grades 3 and 8. Moreover, non-random sample attrition for school changers and much higher rates of special education classification and grade retention for blacks appears to lead to a significant understatement of the increase in the achievement gap with age within the ECLS and other data sets. (Contains 20 tables, 2 figures and 42 footnotes.) An appendix is included which develops the decomposition presented in equation (1). [Support for this work has been provided by the Packard Humanities Institute.]

In response to the rapid rise in court cases related to the adequacy of school funding, a variety of alternative methods have been developed to provide an analytical base about the necessary expenditure on schools. These approaches have been titled to give an aura of a thoughtful and solid scientific basis: the professional judgment model, the state-of-the-art approach, the successful schools method, and the cost function approach. Unfortunately, none can provide a reliable and unbiased answer to the question "how much do adequate schools cost?" Each is highly manipulable, generally satisfying the interested party commissioning the work to be done but not meeting the fundamental tenets of scientific inquiry. This paper reviews and critiques the methodology as applied in a substantial number of states. (Contains 43 endnotes.)