Persistent inequality through schooling: the role of limited school capacity

Children of educated parents systematically perform better at school than children of uneducated parents. It is then natural, if the location of families in the city follows a socially stratified pattern, to observe differences in public school's performances even when they are identically financed. Free school choice is not enough to change this outcome. Capacity cannot be changed overnight and schools facing an excess demand may be forced to turn applications down. If the aim of the school is to maximize expected achievement of children, those from a less favored environment will be rejected first and segregation will increase. In order to overcome this negative result we propose a system of grants to disadvantaged children as a means to finance public schools.