Nova workboard

a blog from young economists at Nova SBE

Voucher System: solution or problem?

The issue of education and intervention by the government in education has always been one subject to enormous public debate. One of the policies that have been adopted in order to render more efficiency to the education system is the Education Voucher Scheme. This has been adopted in countries such as Chile and Sweden, and in some states of the United States of America.

The system can have different designs but it generally works as follows: the government will fund equally public and private schools with an amount that would correspond to the average spending per student in each municipality, in a way such that schools are funded proportionally to the number of students that they have. The reasoning behind this relies on two different effects, the so-called school and competition effect.

Firstly, assuming that private schools are in general better and more cost effective, there will be gains in efficiency and quality by the simple fact that more students are able to attend private schools. The second effect, however, can be of much greater importance. The fact that public schools are competing for students with each other and with private schools (and given that public schools do not have “soft” budget constraints and failing schools are shut down), the competition effect will surely increase the quality of both public and private schools.

Nevertheless there might be some issues, especially concerning equity. Cream-skimming can be a problem: the process of cream-skimming, whereby private schools get the better students out of public schools and into private schools might cause a lower increase in the quality of already bad public schools if there is a strong peer effect. Also, in this case, a greater segregation will arise, which will only tend to reinforce such effects. Also, this kind of policy demands enormous autonomy for both public and private schools and only through this autonomy can competition act and give rise to increases in efficiency and innovation. What is more, it also requires a good flow of information regarding quality of schools and adequate choices by the part of parents.

Yet, these problems might be solved through a proper design of the policy. For example, differentiated vouchers that recognize the fact that students with different ability/social background bring different costs could avoid the occurring of cream-skimming. Finally, information problems require that whoever regulates the system makes it mandatory the disclosure of adequate information such as evaluation of grades, and more importantly of value added by the school. In conclusion, this system can be a step towards efficiency. However, if adequate design is not present, it can also be a step away from equity.

José Miguel Cerdeira #628

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Author: studentnovasbe

Master student in Nova Sbe

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