The Weak Case for Public Schooling

The Voucher Alternative

by David Friedman

I have been considering two alternatives -- government and private schooling. Another alternative, in some ways intermediate between the two, is for the state to provide a fixed amount per pupil per year, which may be used to buy schooling from any of a variety of private providers.13 How well does such a system deal with the problems we have discussed?

A voucher system solves some of the problems associated with market failure on the human capital market. Families that are too poor to pay to send their children to school will be able to use the voucher to pay for schooling. Parents who do not care enough for their children to be willing to pay for their schooling will be able to use vouchers to provide schooling for their children at no cost to themselves. A voucher system might also reduce educational inequality, relative to both government and private systems. It would not, however, eliminate inequality, both because parents would be free to supplement the voucher14 and because the parents themselves are a major input to the child's education.

It is not clear whether a voucher system solves any of the other problems raised by a purely private system. It is, for example, a poor tool for solving inefficiencies associated with positive externalities -- supposing that one believes such externalities exist and are substantial. With a voucher, the cost to the parents of an additional dollar of schooling is zero up to the amount of the voucher and one dollar above it. That means that parents who would in any case spend more than the voucher will buy the same amount of schooling with a voucher as with private schooling.15 If there are substantial net positive externalities, that amount will be inefficiently low. Parents who would have spent less than the amount of the voucher will now spend the full amount -- which might buy more or less than the efficient amount of schooling. A better way of dealing with such externalities would be for the state to pay a percentage of school expenses corresponding to the percentage of net benefits that went to people other than the student and his family. A voucher makes sense, from this standpoint, only if the optimal educational expenditure is known and is about the same for all families -- which seems implausible.

While vouchers give the wrong pattern of incentives for solving the externality problem, government schools do still worse. A parent who wishes to give his child a thousand dollar education when the government schools are spending only nine hundred dollars per pupil must pay the full cost of sending his child to a private school: a thousand dollar cost for a hundred dollars of additional schooling.16 If the additional schooling is worth less than the additional cost, the parent leaves his child in the public school, where he gets less schooling than his parent would have bought for him in an entirely private system. So a government system might result in less expenditure on schooling than a completely private system -- making the inefficiency associated with the failure to allow for positive externalities worse rather than better.

Whether a voucher answers the arguments of those who believe that parents are incompetent to control their children's schooling, either because they have the wrong objectives or because they have the right objectives but not enough knowledge to achieve them, depends on how much control the state exercises over schools that accept vouchers. This suggests an important disadvantage of vouchers. If the government is paying the piper, it may well choose to call the tune. If it is giving vouchers to pay for education, it will probably want to determine what counts as education. Thus a voucher system, like a government school system, has the potential to be used either to encourage indoctrination or to redirect "educational expenditure" to benefit politically well organized groups such as school teachers and administrators. While one could design a voucher system to minimize such problems, perhaps by permitting schools to qualify if the mean performance of their students on objective exams matched the mean performance of students at government run schools, it is far from clear that such a system could be either passed or maintained.

A second argument against vouchers is that they may encourage wasteful expenditure on schooling. During the two decades when the performance of U.S. schools, measured by objective exams, plumetted, real expenditure per pupil roughly doubled. Under a voucher system, interest groups selling inputs to schooling -- textbook publishers, teacherís unions, and the like -- have an incentive to lobby to raise the amount of the voucher above the optimal level of school expenditure. While their ability to divert such expenditures to themselves will be limited by quality competition among the schools, an increase in demand for their product will still tend to raise its price.

David Friedman
July 7, 1993


13. Some variants include the option of voucher supported public schools. In others, the amount is different for different sorts of pupils, or is payed out on the basis of performance measures rather than years in school. For the purposes of this essay I shall ignore such fine points, and consider a simple version of the voucher proposal.

14. Even if schools were not permitted to charge more than the voucher, parents still could and would supplement their children's education in other ways.

15. This conclusion ignores income effects due to redistribution. Families with many children and low income will be net gainers by a voucher; families with few children and high income will be net losers. The former will tend to buy more schooling for their children than without a voucher, the latter less.

16. If the only relevant dimension of schooling is number of hours, this is not true; a parent can provide the extra hundred dollars as privately provided after school tutoring. But if the relevant dimension is quality rather than quantity of schooling, simply supplementing what the government provides is not a satisfactory option.