A framework for the analysis of teachers' demand and supply

Abstract

This article develops a general framework for the analysis of education finance reforms. Most of the recent literature concentrates o on the demands and ignores the costs of educational services. Proposed reforms that account for different costs assume that the supply of all educational inputs are infinitely price elastic. The article presents a model for the supply of different types of teachers and an optimization model of the school district which maximizes a general welfare function subject to production function and budget constraints. Derived demand equations are obtained under the assumptions of (1) perfect competition, (2) monopsony, and (3) monopsony plus endogenous property tax rates. The equations are simplified and estimated using data from Pennsylvania school districts. A major policy implication for school finance reform is that present schemes for state equalization aid may be fundamentally flawed because they do not properly account for the effects of demand shifts (with upward sloping supply curves) on education input prices.