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Eric A. Hanushek: Public and professional debate about the best way to fund schools have been going on for a very long time, but their intensity has increased enormously over the past three decades. Yet this debate remains resistant to careful and thorough analysis. The paper by Thomas Nechyba provides a clear statement of the value of systematic analysis of important policy issues. This paper, which provides an overview of a series of papers by Nechyba, is a dramatic departure from most previous discussions. It provides specific insights into the likely outcomes of a number of policies currently being discussed. But more important, it develops a structure for thinking about the entire funding matter. I am a great fan of this line of research, and I think it has provided considerable clarity to an area clouded in slogans, emotions, and vested interests.

This powerful analysis introduces economic theory into policy evaluation. In some areas such as regulatory policy or monetary and fiscal policy, economic analysis is common. Such is not the case when it comes to schools and their finance. Moreover, while Nechyba describes this work as "applied theory," he has now developed a machine that goes beyond theory and gets close to the details of actual policy proposals.

The central theme of this line of research is that school finance cannot be analyzed in isolation from other choices and behavior. In various other subjects of interest, partial equilibrium analysis gives very satisfactory answers. This is not true for school finance, where general equilibrium effects almost certainly dominate. This line of research, which is clearly presented in the paper, shows the importance of considering the outcomes for schools of individual behavior.

Nechyba identifies the key interactions among household location, school finance policies, and school outcomes. Public schooling that is linked to the residence of a family implies that location and schools are a joint decision. This jointness implies that policies that affect people's evaluation of the finance and quality of schools can change their evaluation of a particular residential location, and families are likely to respond to policy changes by adjusting their location. A theme that weaves throughout the analysis is that the role of private schooling has been misunderstood. Private schooling allows some families to break the link between household location and the schools that their children attend. Thus, for example, we find that there is less income segregation by jurisdictions when private school alternatives are available. This general equilibrium finding contrasts sharply with the common public view and the typical policy debates that suggest private schools are a segregating influence.

Who is surprised by these results? For the most part, economists who study public finance and urban location are not. Although many of these people have not spent much time thinking about the institutional details and the general equilibrium effects that might be expected, with a little thought they would likely come up with the overall conclusions that Nechyba reaches. Of course, they would not have a good sense of the magnitude of any effects, but that is also where Nechyba cautions us to be careful. The magnitudes are a direct function of some key parameters that are not fully analyzed or known.

The group that would be surprised most completely by this analysis is today's decisionmakers on school finance—the state courts, the state legislatures, and the state education departments. School finance issues have been near the top of the policy agenda for at least the past three decades. This represents the confluence of two different streams of thinking. First, growing out the 1960s with the concerns about poverty and equity, a series of lawsuits directly attacked the common mode of school finance. The beginning was the California suit, Serrano v. Priest, which argued that it was a violation of the Fourteenth Amendment of the U.S. Constitution to make "the quality of one's school based on the wealth of neighbors." With the common use of local property taxes...