Romney, School Choice, and Market Failure

The NYT has an interesting article on Romney’s embrace of school choice, a move that counters the federalization of education and the kinds of accountability that were reinforced by the Bush administration.

As the Times notes:

 Specifically, Mr. Romney proposed to change federal payments made to schools with large numbers of poor and disabled students into an individual entitlement. Students would take a share of the $25 billion in two federal programs to the school of their choice.

He would also extract the federal government from intervening to turn around the lowest performing schools, which has been a chief focus of the Obama administration. Instead, to drive improvement, Mr. Romney would have schools compete for students in a more market-based approach to quality.

“This is the best motive to reform there will ever be — if you give parents the ability to vote with their feet,” said Tom Luna, Idaho’s superintendent of schools, who is an adviser to Mr. Romney.

School choice makes great sense from the perspective of theory and there is some evidence that it has positive (if small) impacts on student performance and on schools that are subjected to competition.

A number of factors have been responsible for the limited impact of school choice (some of which have been purposefully inserted into state-level legislation precisely for this purpose). They include:

  • Insufficient funding for vouchers (both in aggregate and in the value of an individual voucher), often combined with a prohibition of parents supplementing the voucher with their own money
  • Restrictions on the use of vouchers in parochial schools;
  • Failure to fund efforts to provide potential participants with necessary information;
  • Failure of districts to provide additional services (e.g., transportation) thereby creating massive transaction costs, and
  • An unwillingness of public schools to accept students from outside their districts.

Romney appears to be interested in addressing this final problem. According to the Times: “One of Mr. Romney’s ideas for increasing students’ choices seems to contradict an anti-Washington emphasis: giving poor students the freedom to choose a public school outside their district.” This can’t sit well with advocates of local control.

A key problem with school choice is that it relies on market mechanisms but the key factors necessary to allow a market to function are usually absent, often by design. When you place great restrictions on the use of vouchers, impose both supply and demand constraints, do little to address information scarcity, and create massive transaction costs, you come as close as possible to guaranteeing market failure. Given that most of these factors are beyond the reach of Washington, I doubt if Romney’s embrace of school choice will amount to much.

2 thoughts on “Romney, School Choice, and Market Failure

  1. These are not market failures. These are regulatory failures (or victories if you think the purpose of the regulations is to stifle school choice).

    1. I must disagree. Public policy decisions can undermine the factors necessary to allow markets to function, thereby inducing market failure. If one were to identify what would have to exist for perfect educational markets to exist, one could go down the list and discover that the majority of preconditions have been thwarted by policy. My key point: having vouchers may not be enough given the variety of ways in which state and local governments, unions, etc., can undermine choice.

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