IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Competition and Educational Productivity: Incentives Writ Large

  • MacLeod, W. Bentley


    (Columbia University)

  • Urquiola, Miguel


    (Columbia University)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7063.

in new window

Length: 38 pages
Date of creation: Dec 2012
Date of revision:
Publication status: published in: Paul Glewwe (ed.), Education Policy in Developing Countries, Chapter 7, University of Chicago Press, 2013
Handle: RePEc:iza:izadps:dp7063
Contact details of provider: Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page:

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Hai-Anh Dang & F. Halsey Rogers, 2008. "The Growing Phenomenon of Private Tutoring: Does It Deepen Human Capital, Widen Inequalities, or Waste Resources?," World Bank Research Observer, World Bank Group, vol. 23(2), pages 161-200, April.
  2. Clark Damon, 2010. "Selective Schools and Academic Achievement," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-40, February.
  3. Kremer, Michael R. & Miguel, Edward & Thornton, Rebecca, 2009. "Incentives to Learn," Scholarly Articles 3716457, Harvard University Department of Economics.
  4. Hanushek, Eric A., 2011. "The economic value of higher teacher quality," Economics of Education Review, Elsevier, vol. 30(3), pages 466-479, June.
  5. David Newhouse & Kathleen Beegle, 2006. "The Effect of School Type on Academic Achievement: Evidence from Indonesia," Journal of Human Resources, University of Wisconsin Press, vol. 41(3).
  6. repec:oup:restud:v:66:y:1999:i:1:p:169-82 is not listed on IDEAS
  7. James Malcomson & James W. Maw, 2002. "General Training by Firms, Apprentice Contracts, and Public Policy," Economics Series Working Papers 86, University of Oxford, Department of Economics.
  8. Urquiola, Miguel & Verhoogen, Eric, 2007. "Class Size and Sorting in Market Equilibrium: Theory and Evidence," IZA Discussion Papers 2963, Institute for the Study of Labor (IZA).
  9. Alejandra Mizala & Pilar Romaguera & Miguel Urquiola, 2006. "Socioeconomic status or noise? Tradeoffs in the generation of school quality information," Documentos de Trabajo 225, Centro de Economía Aplicada, Universidad de Chile.
  10. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September.
  11. Charles T. Clotfelter, 1999. "Public School Segregation in Metropolitan Areas," Land Economics, University of Wisconsin Press, vol. 75(4), pages 487-504.
  12. Sheetal Sekhri & Yona Rubinstein, . "Do Public Colleges in Developing Countries Provide Better Education than Private ones? Evidence from General Education Sector in India," Virginia Economics Online Papers 375, University of Virginia, Department of Economics.
  13. Thomas J. Nechyba, 2000. "Mobility, Targeting, and Private-School Vouchers," American Economic Review, American Economic Association, vol. 90(1), pages 130-146, March.
  14. Reback, Randall, 2008. "Teaching to the rating: School accountability and the distribution of student achievement," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1394-1415, June.
  15. C. Kirabo Jackson, 2010. "Do Students Benefit from Attending Better Schools? Evidence from Rule-based Student Assignments in Trinidad and Tobago," Economic Journal, Royal Economic Society, vol. 120(549), pages 1399-1429, December.
  16. Gabrielle Fack & Julien Grenet, 2010. "When do better schools raise housing prices? Evidence from Paris public and private schools," Post-Print halshs-00754480, HAL.
  17. Babcock, Phillip & Marks, Mindy, 2010. "The Falling Time Cost of College: Evidence from Half a Century of Time Use Data," University of California at Santa Barbara, Economics Working Paper Series qt7rc9d7vz, Department of Economics, UC Santa Barbara.
  18. Charles T. Clotfelter, 1998. "Public School Segregation in Metropolitan Areas," NBER Working Papers 6779, National Bureau of Economic Research, Inc.
  19. Richard Arnott & John Rowse, 1982. "Peer Group Effects and Educational Attainment," Working Papers 497, Queen's University, Department of Economics.
  20. repec:mpr:mprres:3181 is not listed on IDEAS
  21. repec:oup:qjecon:v:120:y:2005:i:2:p:551-583 is not listed on IDEAS
  22. repec:eme:rlepps:v:18:y:1999:i:1999:p:177-242 is not listed on IDEAS
  23. Harry Anthony Patrinos & Felipe Barrera-Osorio & Juliana Guaqueta, 2009. "The Role and Impact of Public-Private Partnerships in Education," World Bank Publications, The World Bank, number 2612.
  24. repec:oup:qjecon:v:125:y:2010:i:2:p:515-548 is not listed on IDEAS
  25. Kenneth Y. Chay & Patrick J. McEwan & Miguel Urquiola, 2005. "The Central Role of Noise in Evaluating Interventions That Use Test Scores to Rank Schools," American Economic Review, American Economic Association, vol. 95(4), pages 1237-1258, September.
  26. Cecilia Elena Rouse & Lisa Barrow, 2009. "School Vouchers and Student Achievement: Recent Evidence and Remaining Questions," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 17-42, 05.
  27. Bentley MacLeod, 2001. "Optimal Contracting with Subjective Evaluation," Theory workshop papers 357966000000000036, UCLA Department of Economics.
  28. Harold Alderman & Peter F. Orazem & Elizabeth M. Paterno, 2001. "School Quality, School Cost, and the Public/Private School Choices of Low-Income Households in Pakistan," Journal of Human Resources, University of Wisconsin Press, vol. 36(2), pages 304-326.
  29. Jayachandran, Seema, 2014. "Incentives to teach badly: After-school tutoring in developing countries," Journal of Development Economics, Elsevier, vol. 108(C), pages 190-205.
  30. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  31. Adrienne M. Lucas & Isaac M. Mbiti, 2012. "Access, Sorting and Achievement: the Short-Run Effects of Free Primary Education in Kenya," Working Papers 12-10, University of Delaware, Department of Economics.
  32. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March.
  33. Miguel Urquiola, 2005. "Does School Choice Lead to Sorting? Evidence from Tiebout Variation," American Economic Review, American Economic Association, vol. 95(4), pages 1310-1326, September.
  34. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
  35. Philip Oreopoulos & Daniel Lang & Joshua Angrist, 2009. "Incentives and Services for College Achievement: Evidence from a Randomized Trial," American Economic Journal: Applied Economics, American Economic Association, vol. 1(1), pages 136-63, January.
  36. W. Bentley MacLeod, 2007. "Reputations, Relationships, and Contract Enforcement," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 595-628, September.
  37. repec:oup:qjecon:v:117:y:2002:i:4:p:1491-1527 is not listed on IDEAS
  38. repec:oup:qjecon:v:114:y:1999:i:2:p:577-599 is not listed on IDEAS
  39. Francisco A. Gallego, 2004. "School Choice, Incentives, and Academic Outcomes: Evidence from Chile," Econometric Society 2004 Latin American Meetings 39, Econometric Society.
  40. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  41. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
  42. Jesse Rothstein, 2007. "Does Competition Among Public Schools Benefit Students and Taxpayers? Comment," American Economic Review, American Economic Association, vol. 97(5), pages 2026-2037, December.
  43. Joshua Angrist & Eric Bettinger & Michael Kremer, 2006. "Long-Term Educational Consequences of Secondary School Vouchers: Evidence from Administrative Records in Colombia," American Economic Review, American Economic Association, vol. 96(3), pages 847-862, June.
  44. David Bravo & Sankar Mukhopadhyay & Petra E. Todd, 2010. "Effects of school reform on education and labor market performance: Evidence from Chile's universal voucher system," Quantitative Economics, Econometric Society, vol. 1(1), pages 47-95, 07.
  45. Patrick J. McEwan & Miguel Urquiola & Emiliana Vegas, 2008. "School Choice, Stratification and Information on School Performance: Lessons from Chile," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, January.
  46. repec:oup:qjecon:v:87:y:1973:i:3:p:355-74 is not listed on IDEAS
  47. MacLeod, W. Bentley & Urquiola, Miguel, 2012. "Anti-Lemons: School Reputation, Relative Diversity, and Educational Quality," IZA Discussion Papers 6805, Institute for the Study of Labor (IZA).
  48. repec:oup:qjecon:v:123:y:2008:i:4:p:1373-1414 is not listed on IDEAS
  49. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  50. repec:oup:qjecon:v:118:y:2003:i:4:p:1533-1575 is not listed on IDEAS
  51. Card, David & Krueger, Alan B, 1992. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 1-40, February.
  52. Das, Jishnu & Pandey, Priyanka & Zajonc, Tristan, 2006. "Learning levels and gaps in Pakistan," Policy Research Working Paper Series 4067, The World Bank.
  53. Caroline M. Hoxby, 2002. "School Choice and School Productivity (or Could School Choice be a Tide that Lifts All Boats?)," NBER Working Papers 8873, National Bureau of Economic Research, Inc.
  54. Emily Oster & M. Bryce Millett, 2010. "Do Call Centers Promote School Enrollment? Evidence from India," NBER Working Papers 15922, National Bureau of Economic Research, Inc.
  55. David Austen-Smith & Ronald G. Fryer, 2005. "An Economic Analysis of 'Acting White'," Discussion Papers 1399, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp7063. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.