Tuesday, May 5, 2009

The proper way to create education vouchers

Education vouchers are supposed to create competition among schools to improve the level of education within a school district. In particular, it is supposed to help students get out of particularly bad schools and into better ones. The reality is, however, quite different. The best schools get even better because they can afford to become more choosy, and the differences across schools become even larger. So how could this be fixed?

Dennis Epple and Richard Romano suggest that school voucher should not be just blank checks. You need to be subtle. If you want to achieve high and equal quality education, the amount of the voucher needs to decrease with student ability, and the school need to accept them as full tuition. This requires large vouchers, and thus high taxes to finance them. Epple and Romano show that a less expensive system is possible, all you need is attach various constraints to the use and amount of the voucher. And this still works if students or schools can choose to opt out.

The key to all this is to prevent schools from making too much profit from vouchers. Essentially, vouchers increase the paying capacity of schooling demand, and schools exploit this. To counteract this, they need to be constrained, either by disallowing them to accept payments in addition to the voucher (or they would just charge the usual tuition plus voucher and laugh all the way to the bank), or allow side payments with more strings attached. The former seems much easier to implement and monitor, though. Also critical is that voucher amounts should not depend on the income or wealth of parents. Then, one can prevent richer schools from getting even richer with more rich kids.


karpa22 said...

Would this fail in practice? It's probably not possible to measure student "ability" — the closest thing we can measure is academic performance. But if crappier students get more money, then students have an incentive to flunk tests.

Economic Logician said...

True, but schools can refuse students, and one of their goals is to increase the quality of the students to attract more of them.

Independent Accountant said...

I have a better idea to equalize student acheivement: drug kids who get high IQ scores! That should make you happy.

antonia said...

I like your idea, but that would mean that the govt is investing more in educating less capable students, which is fine if the only objective is equality (of outcome). Surely there is a component of investing in the capability of the next generation, in which case you'd want to invest more in educating the most capable students where the returns are higher.

aaytch said...

The key to true equality in a voucher system is to equalize all the funding processes.

Most voucher schemes barely understand that every student needs to get the same voucher and all other government subsidies need to be eliminated.

No voucher scheme that I've ever seen understands that the economic incentives of charity are different when a rich person gets a bigger deduction according to progressive tax rates. Therefore a successful voucher system needs to implement a fixed tax credit rate to replace the current charitable deduction.