Abstract
Countries that finance schools by means of uniform per-student allocations and allow free school choice seem to recognize the need to regulate admissions at over-subscribed schools. In this paper, we show that, without such regulations, (i) allowing free school choice leads to complete segregation unless mobility costs are high, and (ii) higher allocations per disadvantaged student enrolled can help achieve a unique and less segregated equilibrium, especially when mobility costs are low. The latter instrument can make regulation unnecessary when the aim is to avoid cream-skimming by publicly financed schools.
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