When Schools Compete, How Do They Compete? An Assessment of Chile's Nationwide School Voucher Program

The notion that free choice is welfare-enhancing is one of the foundations of modern, market-oriented societies. This view is prominent in the school choice debate, where there is a widespread perception that public schools are inefficient local monopolies, and that the quality of education would improve dramatically if only parents were allowed to freely choose between schools. For example, in recent work Hoxby (2001) asks \\what is the range of productivity over which choice could cause productivity to vary? Recent history suggests that school productivity could be much higher than it is now - 60 to 70 percent higher." Two arguments underlie the view that choice would improve the quality of education. First, there is a widely-held belief that private schools are better than public schools. Al- though most research on this is hampered by selection issues, recent work that exploits quasi-experiments with vouchers find some evidence that children benefit from attending private schools.1 The implication is that unrestricted choice could raise students' achievement merely by facilitating their transfer to the private sector. A second, perhaps even more compelling argument for choice comes from our instinct that people and organizations respond to incentives. Therefore, by correctly aligning the incentives public schools face, choice would force their ossified bureaucracies to improve.