The Political Economy of School District Mergers

The number of school districts in the United States has fallen from around 130,000 in 1930 to just under 15,000 at present. Despite the large observed decline, many districts resisted consolidation before ultimately merging and others never merged, choosing to remain at enrollment levels that nearly any education cost function would deem ine¢ ciently small. Why do some districts voluntarily integrate while others remain small? In attempting to answer this question, we empirically examine the role of three theoretically-identi…ed factors: 1) potential economies of scale, 2) the loss in autonomy associated with heterogeneity in preferences between merger partners, and 3) state-level …nancial incentives for mergers. In order to measure the role of these factors, we focus on the state of Iowa, which experienced a wave of voluntary mergers during the 1990s due in part to state …nancial incentives. We have obtained a pre-merger school district map, which identi…es potential merger partners, as well as data on pre-merger district characteristics, such as population, demographics, and assessed property values, and calculated the …nancial incentives o¤ered by the state to each potential merger pair. While standard econometric models fail to capture the interdependence in merger decisions and the legal requirement that any mergers be approved by voters in both districts, we have developed a model that captures these two key institutional features. Applying this methodology to the Iowa data, our preliminary results demonstrate the importance of economies of scale and the state …nancial incentives in explaining the observed patterns of mergers in Iowa. We …nd only a minor role for various heterogeneity measures, although these results can not necessarily be generalized to other states. Respectively, Department of Economics, University of California, San Diego, email: [email protected], and Department of Economics, Brown University, email: [email protected]. y PRELIMINARY AND INCOMPLETE. PLEASE DO NOT CITE WITHOUT PERMISSION OF THE AUTHORS.