Market Reform and School Competition: The Lesson from Sweden

IFN Working Paper No. 1143, 2016

32 Pages Posted: 7 Dec 2016  

Johan Wennström

Research Institute of Industrial Economics (IFN); Linkoping University

Date Written: December 1, 2016


In a radical school choice reform in 1992, Sweden’s education system was opened to private competition from independent for-profit and non-profit schools funded by vouchers. Competition was expected to produce higher-quality education at lower cost, in both independent and public schools. This article analyzes whether the school choice reform was institutionally secured against school competition based on phenomena that are unrelated with educational quality. Interviews with key personalities reveal that the architects of the reform overemphasized the virtues of market reforms and therefore did not deem it necessary to establish appropriate rules and institutions for school competition. Instead, ill-conceived grading and curriculum reforms paved the way for moral hazard resulting in grade inflation and other forms of unintended school competition. The lesson from Sweden’s experience is that market reforms of public services production, particularly those that introduce for-profit producers, must account for how institutions and incentive structures affect behavior.

Keywords: School choice, grade inflation, institutions, hazardous adjustment

JEL Classification: D02, D62, I28

Suggested Citation

Wennström, Johan, Market Reform and School Competition: The Lesson from Sweden (December 1, 2016). IFN Working Paper No. 1143, 2016. Available at SSRN: or

Johan Wennström (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15

Linkoping University ( email )

Linkoping, 581 83

Paper statistics

Abstract Views