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Enhancing Education Through Voucher Programs: Principal-Agent Dynamics

Explore the impact of voucher programs on education through a Principal-Agent lens, examining bias, noise, and incentives. Review evidence on voucher programs in various countries and the productivity of effort in different educational contexts. Gain insights into the challenges and benefits of implementing vouchers for basic education.

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Enhancing Education Through Voucher Programs: Principal-Agent Dynamics

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  1. Experiences with Vouchers for Basic Education: A Principal-Agent Perspective Varun Gauri, DECRG October 17, 2002

  2. The Archetypal Education System • Centralized management and hiring • General revenue finance • Direct payment of operating costs • Students assigned to schools • Remuneration and promotion based on negotiated, experience-related criteria

  3. Voucher Programs • Parents choose schools: public / private • Intense incentives on enrollments • Managerial autonomy to respond to demand

  4. Three Simultaneous Reforms • Autonomy without intense incentives (Chicago, El Salvador) • Choice without autonomy (Minnesota, Detroit, de facto developing countries) • Intense incentives without choice (high stakes accountability, merit pay)

  5. Principal-Agent approach to vouchers • The state is the principal • The schools are the agents • Enrollments are the sole measure of school effort • School payments =  + (e + x + y)

  6. The Estimate of Effort • Prima facie plausibility • Potential systematic bias: conflate student body with quality of education, and latter with effort • Noise: remoteness, birth rate, migration, returns to education, cultural expectations on who should be in school

  7. Evidence on Bias and Noise • Small impact in US studies (Myers 2001, Rouse 1998), Chile (Hsieh and Urquiola 2001, McEwan and Carnoy 1999) • Students flee minority schools in New Zealand (Fiske and Ladd 1999, 2000) and Sweden (Daun 2002) • School selection in Chile (Gauri 1998, Espinola 1995) and New Zealand

  8. Productivity of More Effort • Limited if teacher training inadequate, textbooks unavailable, rules restrictive, students malnourished, teachers politicized, difficult to recruit teachers: Cote d’Ivoire (Michaelowa 2001, World Bank 1999) • Substantial if surplus capacity in private schools: Colombia (Angrist et al 2001)

  9. Relative compensation across activities • Activities rewarded at lower rates will receive little or no effort • Teacher training: Cote d’Ivoire • Curricular innovation: Chile, New Zealand, UK (Walford 2002)

  10. Value of Monitoring • Rewards for exaggerating enrollment rates, loosening academic standards • Anecdotal evidence in Chile, Cote d’Ivoire • Evidence to the contrary in Colombia

  11. Risk Averse Agents • The greater the risk aversion, the higher the welfare cost from intense incentives • Teachers lobby not to be fired, transaction costs of selling schools • Few schools closed in Chile, New Zealand

  12. Bottom Line • Bias and noise in the estimate of effort – include co-variates and controls • Need monitoring, risk-averse agents, limited returns to effort: vouchers are costly • Useful over range where marginal returns to effort are high: poor students, excess capacity in private schools • Useful for disadvantaged students (?)

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