The Educational Economics of School Choice

Ever since Friedman’s work on the educational economics of school choice (Friedman, 1962) the debate has gone round in circles about the merits of a comprehensive public system compared to what is known as a voucher system. It is likely that in some country, somewhere in the world, right now a government is attempting to implement “more competition in the schooling sector” through a voucher system. Is this a good thing?

My fundamental argument in this post is that schooling policy can either work to create a low-friction market or to reduce inequality but not both. I’ll return to this post over time to make improvements as I get a handle on the arguments. My conclusion thus far is that I am strongly opposed to voucher systems based on their tendency to increase inequality.

Some arguments in brief. Schools change slowly. There is a great deal of friction in an educational marketplace (i.e. it is hard to change schools). Critically, human geography (and the social inequality that determines it) makes the idea of choosing schools challenging. There is a strong motivation in a deregulated, competitive market for schools to spend increased amounts of money on advertising (when compared to teaching), to the detriment of all. There are many benefits of schools working in collaboration rather than competition that are lost.

I’m sure there are many more, strong arguments. For now, this is a summary from Dolton (2003) in The Economic Journal:

Opponents of the school choice movement (see Smith and Meier (1995) for example) suggest that it will lead to the destruction of public schools and the increased segregation of schools by race, class and ability and induce greater in- equality. Opponents to the market model suggest that empirical evidence relating to the successes of existing choice-based systems are questionable and that the theories and assumptions that provide intellectual support for choice are abstract and have never been systematically tested. ‘The new market “model” is often not spelt out in detail nor are the assumptions concerning individual and institutional behaviour that would be required to provide the anticipated efficiency gains’, Witte (2000, p. 11). One prominent critique of the public choice also suggests that it ‘will erode the public forums in which decisions with societal consequences can democratically be resolved’,

The central questions in the school choice debate remain: what exactly is meant by school choice; who chooses to select private schools and how do they choose; what do families really know about schools; what are the reasons and rationale for choices; in reality how much choice is there for most families; what happens to the children left behind in the public schools in districts which introduce voucher schemes; how much diversity is there after a voucher scheme is introduced; are parents more satisfied by the market alternative; are parents making rational choices and are market forces leading to improvements in standards?

Empirical evidence which answers these questions can be very negative (see Gorard (1997) for example) suggesting that: schools are basically very similar, families consider very few schools in reality, selection by mortgage/house prices operates powerfully, formal sources of information like league tables are of little consequence and choices are often made long in advance by default. Alternative evidence suggests that the consequences of introducing school choice can lead to positive educational improvements in all schools.

The Dolton article provides an excellent review of the key questions around the issue of implementing voucher schemes. A critical one being the idea that voucher systems presuppose all schools being private. When there is a parallel private and public system then it becomes an issue of “exit and voice” (see Hirschman (1970)):

This problem is that there will not be an effective mechanism for change if the most influential parents choose to ‘exit’ from the state schools to the private schools rather than ‘voice’ their views in an attempt to change the state schools.

The argument that Dolton is making here is that for a competitive market to actually work, there needs to be an accountability – where the needs of consumers (parents) are taken into account by the market (schools). This does not happen in practice.

The key gap in the literature is that models of school choice theory “do not explicitly address the issue of how parents exiting from the public school sector to the private sector will affect outcomes in public schools” (F179)

Paywall link:


Dolton, P. (2003), A review of ‘The Economics of School Choice’, The Economic Journal, Vol. 113, No. 485, Features (Feb., 2003), pp. F167-F179

Friedman, M. (1962), The Role of Government in Education. In Capitalism and Freedom. Chicago: University of Chicago Press.



Thanks to the community on the economics StackExchange site for help with researching this post, especially the user luchonacho. You can read the full thread here:

Update and edit:

This theme was recently addressed by Amanda Keddie in an excellent post on the EduResearch Matters blog on Why Australia should not follow Nick Gibb’s advice on how to run our schools.

My comment on her post is reproduced here as it is germane to this discussion:

Thanks Amanda for a well-written post arguing for nuance in this debate around educational reform.

I am writing this comment to take up the thread and argue for a high level of debate around this issue. To my mind there are three levels at which debate tends to occur when it comes to ideas of school privatisation:

1. Ideology: People who talk passionately about educational systems tend to hold one of two ideals. If liberty is your ideal then anything to do with “competition”, “autonomy”, and “choice” is a good thing. If equality is your ideal then anything to do with “social justice”, “opportunity”, and “social mobility” is a good thing. At this level, the debate can go nowhere and cannot attempt to find common ground. (For the record: I favour equality but I recognise that this is simply not as important as liberty for many people in society).

An example of commentary at the level of ideology: “I believe that choice is also a major piece in the puzzle of providing the best education to young Australians” – Senator the Hon. Simon Birmingham

2. Empirical: Sometimes the debate rises to the point that people start throwing around the conclusions of one or other study from the literature. At its worst there is cherrypicking of whichever study best supports ideology. Often there is simply a lack of recognition that education is highly contextual. Something that works in one country with its own culture and educational history may have entirely different outcomes in another country. At its best there is nuanced weighing up of empirical evidence from both sides and attempts to find trends and contradictions.

3. Theoretical: We need debate that attempts to understand why studies produce the outcomes that they do. Debate that leaves ideology at the door and perhaps even moves beyond prior examples to imagining what could be possible. This would involve firstly having a discussion around the objectives for what we want the outcomes for a school system to be. For example: Do we want better international PISA scores (often assumed to be a goal) or do we care more about a reduced disparity between advantaged and disadvantaged (one of many other possible aims)? Is it possible to achieve both without significantly more funding? What do we choose if it must be one or the other?

From a considered understanding of desired outcomes, we can then learn from many the nuanced examples in the literature. The literature around these issues is far more broad than many recognise, spanning many decades and multiple paradigms: applied economics, education, sociology, history, etc. We need to learn from all of it if we want to get arrive at good policy that fits with our own context in Australia.

For example, this is a quote from Dolton (2003, The Economic Journal 113(485)) trying to find the nuance in the debate around “school choice”:

“The central questions in the school choice debate remain: what exactly is meant by school choice; who chooses to select private schools and how do they choose; what do families really know about schools; what are the reasons and rationale for choices; in reality how much choice is there for most families; what happens to the children left behind in the public schools in districts which introduce voucher schemes; how much diversity is there after a voucher scheme is introduced; are parents more satisfied by the market alternative; are parents making rational choices and are market forces leading to improvements in standards?”

3 thoughts on “The Educational Economics of School Choice”

  1. Hi Nick,
    I am pleased to have found your site. I am currently negotiating the issue of “school choice” in a very practical way as we decide where to send my daughter for high school. Despite being a trained teacher now myself, I have found the process of evaluating schools to be a very complicated one.

    I thank you for drawing attention to the issue of accountability of schools to parents, and the way in which, in the state school system, unfortunately, there is little incentive for schools to communicate with prospective students’ parents. At the same time, there is still a great deal of information about schools–their climate for learning, their ambience, their ethos– that is not readily accessible to parents and cannot be gleaned from reading annual reports and researching rankings for HSC results. All of this creates “a blackbox effect”, where families can track enrolment trends and HSC results but miss out on a feel for what the school is actually like to attend. In my opinion, speaking as a teacher and parent, the best way to sense the character of the school is to take a tour while the school is in session and meet the principal, some of the teachers, and students face-to-face. This subjective experience is an essential complement to objective data readily available on the internet, and yet this experience is not easy to attain as schools must strike a balance between their core “business” of teaching and learning, and their obligations to reach out to future students and parents in their community. In our recent experience, state schools have not been particularly good at communicating with prospective students and parents. For example, my daughter recently tested into an academically selected stream at a state high school, but despite receiving an offer of a placement, the school refused to offer a tour to selected students, and seemed rather indifferent as to whether we would take up the offer or not. Essentially, as we had missed the one opening night of the year, we were expected to decide about possible enrolment on a blind basis, presumably based on the school’s published academic ranking alone. By contrast, our experience with private schools has been that they make a great deal of effort in reaching out to parents and putting on all manner of seminars, tours, and open days for families. Of course, this “outward facing behaviour” is to be expected; private schools are in the business of winning enrolments from parents and families. Private schools have “customers”, and state schools do not. We are not under any illusion that the teaching in the classroom is necessarily better in a private school. However, the bureaucratic and impersonal mode of operation of the large state high school is definitely alienating for families. Moreover, if a school is not “outward facing” then it is not doing a good job of reaching out to its community. If our lived experience is any indication, if state high schools want to maintain enrolments from families who can afford to send their children to private schools, then they must do a better job of communicating with families and making them feel that their children are welcome.
    Perhaps state schools should have their own designated marketing and communication officers? Even the simple act of having someone post videos on the school website with interviews with the teachers and students would go a long way towards projecting a welcoming and open image to parents and students. Yet in my experience there are only a handful of innovative state schools that have seized this opportunity to communicate with families online.

    1. Hi Anne, thanks so much for the post!

      Yes, I think that your experience is highlighting one of the many problems of competition in schools.

      It encourages a strong focus upon the “moment of transaction” (choosing the school) and not on the substance of education.

      So on the one hand we could have state schools embrace marketing… but that worries me a bit because you can end up in a situation like Santiago in Chile where there’s so much money in education that at a certain time of the year every billboard in the city is taken up with ads for schools and universities. I’d rather have that money go towards teaching!

      On the other hand, without some kind of outward facing effort you get the situation that you’re in which sounds like it’s making school choice challenging, where you don’t know enough about the public option.

      Hope it’s all going well making a choice for your daughter!



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