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Defining Continuous Improvement and Cost Minimization Possibilities Through School Choice Experiments
Abstract
Studies of existing best practices cannot determine whether the current “best” schooling practices could be even better, less costly, or more effective and/or improve at a faster rate, but we can discover a cost effective menu of schooling options and each item's minimum cost through market accountability experiments. This paper describes experiments that would create opportunities for market entry and a price system to signal cost and quality benchmarks (current minimum costs) to families and educators to produce information for policymakers. The entry-price system combination has a great economy-wide track record because it harnesses highly dispersed knowledge about schooling practices and exploits self-interest through opportunities to compete. States or school districts can employ one of four possible market accountability experiments to assess what families want from among the schooling options educators prove to be willing to offer and at what cost: (a) large tax credits or a large universal voucher, (b) school district vouchers, (c) competitive contracting out of school management, and (d) charter law adjustments. This paper describes and compares those four ways to discover a cost-effective menu of schooling options and how much each costs, certainly a key element of one of the biggest policy challenges of our times, drastically improving the performance and efficiency of our K–12 system.
Benefiting from new data provided by experimental economists, behavioral economics is now moving beyond empirical tests of standard behavioral assumptions to the problem of designing improved institutions that are tuned to fit real-world behavior. It is therefore worthwhile to consider the potential for new experiments to advance school choice debates and the daunting task of institutional reform. Deciding which new institutions to introduce and test is an important scientific question. New institutional alternatives are, however, by definition, untested, and empirical arguments to guide this process are difficult to construct without adding more layers of theoretical assumptions. This article analyzes normative criteria that can be used when introducing new institutions for delivering school services. Because of the long time-frames for testing the effects of new institutions and the extraordinarily high stakes for children and families who participate in such experiments, performance metrics that are normally uncontroversial, such as cost minimization, will likely be insufficient for justifying the introduction of new institutions.
Between 1980 and 2005, as the world embraced free market policies, living standards rose sharply, while life expectancy, educational attainment, and democracy improved and absolute poverty declined. Is this a coincidence? A collection of essays edited by Balcerowicz and Fischer argues that indeed reliance on free market forces is key to economic growth. A book by Stiglitz and others disagrees. I review and compare the two arguments.
Behavioral/experimental economics is poised to enter a new phase in its relatively brief intellectual history, moving beyond empirical tests of standard behavioral assumptions in the social sciences to the problem of designing improved institutions that are tuned to fit real-world behavior. For this reason and others, it is worthwhile to analyze the potential value that new experiments could provide to the school choice debates by generating new data to settle longstanding questions.
Hugh Rockoff has provided economic and social historians with a key text on the long run trends in American real wages. Thus his work lies at the heart of subsequent analyses that focus on labor relations, consumption and social categorisation.
This special issue of Public Choice was designed to afford leading scholars the opportunity to summarize the current state of the public choice literature in key areas of public policy concern and to offer their thoughts about future directions of research. By laying out public choice frameworks for analyzing some of the major challenges confronting democratic governments at the dawn of the 21st century, the issue’s overarching goal is to demonstrate the vibrancy and continuing relevance of the public choice research program. Copyright Springer Science + Business Media, Inc. 2005
Using consistent test score data from the National Assessment of Educational Progress and data on per‐pupil spending, I show that the productivity of American public schools fell by approximately half from 1970 to 2000. The most reliable international data also suggest that productivity in American public schools is lower than that of numerous other industrialized countries, including the remaining English‐speaking ones, I explore explanations for the decline in productivity, including changing sociodemographics, Baumol's “cost disease,” rising wages of female college graduates, the increasing emphasis on educating disadvantaged children, rising market power, and the education sector's relative decrease in pay for performance. I review evidence that suggests that schools raise their productivity and use of pay for performance when they face competition. I also describe results that indicate that individual teachers have important, distinctive effects on achievement.
This is a history of America's use of wage and price controls from colonial times to Richard Nixon's experiment with controls in the 1970s. It explores the impact of controls on prices and productivity, side-effects such as the growth of black markets and the expansion of government, and the relationship between controls and monetary policy. The central conclusion is that, contrary to the conventional wisdom, there are situations where the net effect of controls can be positive. In particular, temporary controls may reduce the unemployment and lost output usually associated with disinflation.
Spurred by court rulings requiring states to increase public-school funding, the United States now spends more per student on K-12 education than almost any other country. Yet American students still achieve less than their foreign counterparts, their performance has been flat for decades, millions of them are failing, and poor and minority students remain far behind their more advantaged peers. In this book, Eric Hanushek and Alfred Lindseth trace the history of reform efforts and conclude that the principal focus of both courts and legislatures on ever-increasing funding has done little to improve student achievement. Instead, Hanushek and Lindseth propose a new approach: a performance-based system that directly links funding to success in raising student achievement. This system would empower and motivate educators to make better, more cost-effective decisions about how to run their schools, ultimately leading to improved student performance. Hanushek and Lindseth have been important participants in the school funding debate for three decades. Here, they draw on their experience, as well as the best available research and data, to show why improving schools will require overhauling the way financing, incentives, and accountability work in public education.
Even in relatively backward societies, extensive division of labor and specialization of function is required to make effective use of resources. —Milton Friedman (1962: 12) In most of the economy, competition forces producers to special-ize. And it is well known that specialization within firms and by firms is a cornerstone of high productivity and innovation. But education economists give school differentiation little attention; there is little discussion of the degree to which various K-12 reform proposals might prompt the development of specialized schooling options. This article argues that increased specialization by schools either in what is taught or how it is taught has significant policy ramifications. Parental choice debates and research suffer from the intellectual inertia that results from the minimal specialization present in the current K-12 system, especially in the attendance zone public schools that enroll the vast majority of school-age children. The academic literature, influential newsletters, and the popular media virtually ignore the contrast between an economy full of competing business firms that often differ almost as much as their customers, and schools that differ much less than children. The reform debate, especially the discussion of parental choice, is much the worse for its inattention to specialization. The literature only barely recognizes that the relative uniformity of the K-12 system is sufficiently unusual to warrant some explanation. For example, none of the many esteemed members of the Koret Task Force on K-12 Education, whose aim was to "describe and assess the 317 current state of American education," thought the system's relative uniformity was worthy of mention (Moe 2001: xxi). The lone, note-worthy exception is an article by Byron Brown (1992) that argues that the "comprehensive uniformity" of the current system is a result of popular will and political agreement. 1 Another explanation is that the existing relative uniformity is a default outcome that results from the public school system's public finance monopoly (Quade 1996) and the political strife over education policy (Arons 1983), not something that occurs independent of those factors (Merrifield 2001: 107–9). This article aims to show how attention to the specialization issue would change the school reform debate, how it would help academic researchers greatly improve their models, and why it would make parental choice policies more attractive, especially proposals that would establish a competitive education industry (CEI). To set the stage, the next section reviews the essential elements of a CEI.
Pressing questions about the merits of full-fledged market accountability in K–12 education, and more limited choice programs, have spawned a large scholarly literature. This article assesses what we know from the most prominent studies and the importance of those findings to school system reform discussions.The studies most widely cited in the United States based their findings on small-scale, restriction-laden U.S. programs, and a handful of larger, but still restriction-laden, foreign school choice programs. The extensive restrictions and small size of those programs make them virtually irrelevant to the widely acknowledged transformational change imperative. Because the most intensely studied programs lack most, and sometimes all, of the key elements of market systems, such as profit, price change, market entry, and product differentiation, they don't help us determine whether unleashing market forces will produce more desired than undesired effects. However, absence of the key elements of market systems did not stop numerous analysts from stating conclusions about “markets,” and “competition.”So we know a lot about some of the policy approaches to increased school choice, but little about many policy approaches, and less than many people think we know. We know the most about programs and policies too limited in scope to yield much insight into reform policies capable of addressing the transformation imperative implied by the repeatedly alleged “nation at risk” problem.
There is much interest in the effects of a larger parental role in schooling issues. That role can exist through voice—direct parental involvement in schools and participation in the political process that dictates schooling policies—or through choice from a menu of schooling options. This article addresses the limited understanding and confusion about the latter. The availability of genuine choice varies greatly with the policies (or lack thereof) aimed at expanding it. This article identifies the twelve ways to increase the availability and the affordability of schooling options and discusses the significant attributes of each.
Charter laws have been the reform debate's path of least resistance. But the combination of regulatory barriers, open admissions, lack of consumer sovereignty, preferential funding of traditional public schools, and political control of prices means that charter laws may be irrelevant as reform catalysts, or worse. Even the strongest charter laws may offer a tempting, but ultimately unproductive, avenue of system change. Some critics argue that a charter option will expand the public sector, but not improve it much, and decimate the tiny, frail private sector. This article examines what charter laws have in commonconcerns about strongcharter laws.
This article gives an update on school choice in Canada. Currently, school choice in Canada is stable. Provincialism, in both senses of the word, is a major factor in Canadian political life. There is no contradiction between Ontario's recent electoral rejection of the extension of funding to non-Catholic religious schools, and the strong support for extensive school choice in urban Alberta. The liberal and politically correct political culture of urban Ontario differs from the more individualized and market-driven culture represented by Edmonton and Calgary. Quebec is both more autonomous than any American state, and more culturally distinct, even as its desire for legal separation (with its attendant loss of Alberta's equalization subsidy) dissipates. The movement to Catholic public schools and to independent schools (in three provinces) appears to have reached a plateau. The apparent academic and cultural advantage of Catholic schools may be offset by Canada's rapid secularization. There are financial limits (in families) to the growth of independent schools, accentuated by the growth of single-parent households. Equally important, parental desire for better education for their children, as distinct from higher grades, may be reduced in the majority of provinces, including Ontario, where there is no external testing for university admission, which is therefore determined by arbitrary school assessments. (Contains 14 notes.)
After the U.S. Supreme Court's decision in Zelman v. Simmons-Harris, only state religion clauses represent a potential constitutional bar to the inclusion of religious options in properly designed school choice programs. The two most significant are compelled support clauses and Blaine Amendments. Both are frequently misinterpreted by state courts as applied to school choice when courts take language intended to prevent the provision of aid to religious institutions and apply it to programs aiding individuals and families. Through a historical analysis of their genesis and a legal analysis of related case law, this article demonstrates why the provisions are misinterpreted. The article concludes with a discussion of implications of the history and case law for contemporary school choice programs, noting that in many states these misinterpretations render tax credit programs the preferable alternative for school choice programs.
In Battling Corruption in America's Public Schools, Lydia Segal draws on ten years of undercover investigation and research in over five urban school districts, including the three most centralized, New York City, Los Angeles, and Chicago, and two most decentralized, Houston and Edmonton, Canada, to offer the guidebook to corruption, waste, and abuse in public school systems. Anyone interested in curbing waste, pushing more money into classrooms, and establishing transparent, accountable schools, should read this book. Billions of dollars are poured into urban schools every year—$13.3 billion into the New York City school system; $7 billion into Los Angeles' schools; and $3.6 billion into Chicago's schools. Yet many wonder where the money goes as pupils sit on broken chairs in dilapidated classrooms struggling to learn without library books, working computers, and toilet paper. Segal, an undercover school investigator turned law professor, has written the first book that shows in vivid detail how waste, fraud, and "legalized graft" embedded in the operation of school bureaucracies siphon hundreds of millions of dollars away from services for children, distort educational priorities, and block initiatives. Corroborated by 52 pages of notes and references, her descriptions of gross abuse fill readers with outrage and incite a demand for change. The need for action could not be more urgent, as school systems that score lowest on standardized tests tend to have the biggest criminal records and the most payroll padding.
Between 1980 and 2005, as the world embraced free market policies, living standards rose sharply, while life expectancy, educational attainment, and democracy improved and absolute poverty declined. Is this a coincidence? A collection of essays edited by Balcerowicz and Fischer argues that indeed reliance on free market forces is key to economic growth. A book by Stiglitz and others disagrees. I review and compare the two arguments.
This paper discusses problems of uncertainty and imperfect information that bear on organizational choices for schools. A model of choice under uncertainty illustrates the optimality of the equal opportunity provision of schooling in terms of inputs. The model shows why schools offer similar, diverse curricula as a means of allowing students to shed risk about ability and future employment.Elements of transactions cost economics are used to evaluate organizational choice for providing schooling. Problems of opportunism and regulatory costs are discussed in the cases of for-profit, non-profit, and publicly provided schools.
What is the problem we wish to solve when we try to construct a rational economic order? On certain familiar assumptions the answer is simple enough. If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic. That is, the answer to the question of what is the best use of the available means is implicit in our assumptions. The conditions which the solution of this optimum problem must satisfy have been fully worked out and can be stated best in mathematical form: put at their briefest, they are that the marginal rates of substitution between any two commodities or factors must be the same in all their different uses. This, however, is emphatically not the economic problem which society faces. And the economic calculus which we have developed to solve this logical problem, though an important step toward the solution of the economic problem of society, does not yet provide an answer to it. The reason for this is that the “data” from which the economic calculus starts are never for the whole society “given” to a single mind which could work out the implications, and can never be so given. The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.
Why didn't a single minicomputer company succeed in the personal computer business? Why did only one department store-Dayton Hudson-become a leader in discount retailing? Why can't large companies capitalize on the opportunities brought about by major, disruptive changes in their markets? It's because organizations, independent of the people in them, have capabilities. And those capabilities also define disabilities. As a company grows, what it can and cannot do becomes more sharply defined in certain predictable ways. The authors have analyzed those patterns to create a framework managers can use to assess the abilities and disabilities of their organization as a whole. When a company is young, its resources - its people, equipment, technologies, cash, brands, suppliers, and the like-define what it can and cannot do. As it becomes more mature, its abilities stem more from its processes - product development, manufacturing, budgeting, for example. In the largest companies, values - particularly those that determine what are its acceptable gross margins and how big an opportunity has to be before it becomes interesting define what the company can and cannot do. Because resources are more adaptable to change than processes or values, smaller companies tend to respond to major market shifts better than larger ones. The authors suggest ways large companies can capitalize on opportunities that normally would not fit in with their processes or values; it all starts with understanding what the organizations are capable of.
Incl. abstract After decades of reform efforts, our public schools remain plagued with problems. Who is to blame? Our research suggests the answer is no one. The problem is that the processes and resource-allocation criteria that determine schools' capabilities are misaligned with the demands society places on the schools. The only viable remedy to this problem is politically unpalatable. This means that the best hope for reform will come from new and separate organizations specifically designed to meet the needs of educating today's population, providing students exactly what they need when they need it.
Stressing verbal logic rather than mathematics, Israel M. Kirzner provides at once a thorough critique of contemporary price theory, an essay on the theory of entrepreneurship, and an essay on the theory of competition. Competition and Entrepreneurship offers a new appraisal of quality competition, of selling effort, and of the fundamental weaknesses of contemporary welfare economics. Kirzner's book establishes a theory of the market and the price system which differs from orthodox price theory. He sees orthodox price theory as explaining the configuration of prices and quantities that satisfied the conditions for equilibrium. Mr. Kirzner argues that "it is more useful to look to price theory to help understand how the decisions of individual participants in the market interact to generate the market forces which compel changes in prices, outputs, and methods of production and in the allocation of resources." Although Competition and Entrepreneurship is primarily concerned with the operation of the market economy, Kirzner's insights can be applied to crucial aspects of centrally planned economic systems as well. In the analysis of these processes, Kirzner clearly shows that the rediscovery of the entrepreneur must emerge as a step of major importance.
Using consistent test score data from the National Assessment of Educational Progress and data on per-pupil spending, I show that the productivity of American public schools fell by approximately half from 1970 to 2000. The most reliable international data also suggest that productivity in American public schools is lower than that of numerous other industrialized countries, including the remaining English-speaking ones. I explore explanations for the decline in productivity, including changing sociodemographics, Baumol's “cost disease,” rising wages of female college graduates, the increasing emphasis on educating disadvantaged children, rising market power, and the education sector's relative decrease in pay for performance. I review evidence that suggests that schools raise their productivity and use of pay for performance when they face competition. I also describe results that indicate that individual teachers have important, distinctive effects on achievement.
“IS THERE A DIFFERENCE BETWEEN KNOWLEDGE AND information?†is the question that participants in this symposium were asked to address. I come to the question as an historian of economic thought who has studied the Austrian tradition, and in particular the contributions of F.A. Hayek, who is remembered among information theorists for his early writings on “the knowledge problem.†An analysis of his work may be helpful in grappling with the question of this symposium. In an earlier paper I looked at differing interpretations of the socialist calculation debate and the current prospects for market socialism, and linked to issues of information and knowledge (Caldwell 1997). My remarks here draw in part on that paper.
Roger B. Myerson delivered his Prize Lecture on 8 December 2007 at Aula Magna, Stockholm University. He was introduced by Professor Jorgen Weibull, Chairman of the Economics Prize Committee.
A pre-recorded version of Leonid Hurwicz' Prize Lecture was presented on 8 December 2007 at Aula Magna, Stockholm University. The lecture was introduced by Professor Jorgen Weibull, Chairman of the Economics Prize Committee. (This abstract was borrowed from another version of this item.)
Eric S. Maskin delivered his Prize Lecture on 8 December 2007 at Aula Magna, Stockholm University. He was introduced by Professor Jorgen Weibull, Chairman of the Economics Prize Committee.
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