Three essays consider implications of the strong association between student background characteristics and academic performance. Chapter One considers the incentives that school choice policies might create for the efficient management of schools. These incentives would be diluted if parents prefer schools with desirable peer groups to those with inferior peers but better policies and instruction. I model a Tiebout choice housing market in which schools differ in both peer group and effectiveness. If parental preferences depend primarily on school effectiveness, we should expect both that wealthy parents purchase houses near effective schools and that decentralization of educational governance facilitates this residential sorting
