Competition and Educational Productivity: Incentives Writ Large

38 Pages Posted: 15 Dec 2012

See all articles by W. Bentley MacLeod

W. Bentley MacLeod

Columbia University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Miguel S. Urquiola

Columbia University

Abstract

Friedman (1962) suggested that in general, unfettered markets ensure the efficient provision of goods and services. Applying this logic to Education, he recommended that students be provided with vouchers and allowed to purchase schooling services in a free market ((Friedman (1955, 1962)). Hoxby (2002) refines this argument and suggests that more choice will lead to higher school productivity. We discuss the evidence in this area, concluding that the impact of competition has proven to be more mixed and modest than expected. We suggest that this in fact should not be surprising, since economic theory on incentives and incomplete contracts (beginning with many contributions also from the 1950s) leads to a more nuanced expectation. Specifically, an examination of the incentives faced by schools, parents, and students leads to predictions that are broadly consistent with the evidence, and suggests that there is no a priori reason to believe that school choice will dramatically improve test scores. We describe a simple model that illustrates this point and further implies that elements of market design might be necessary to ensure that competition enhances educational performance.

Keywords: education, markets, information

JEL Classification: D2, D8, J3, I2

Suggested Citation

MacLeod, William Bentley and Urquiola, Miguel S., Competition and Educational Productivity: Incentives Writ Large. IZA Discussion Paper No. 7063. Available at SSRN: https://ssrn.com/abstract=2189801

William Bentley MacLeod (Contact Author)

Columbia University - Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Miguel S. Urquiola

Columbia University ( email )

420 W. 118th Street
New York, NY 10027
United States

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