The Effects of Competition on Educational Outcomes (page 2)

By — Educational Resource Information Center (U.S. Department of Education)
Updated on Jul 26, 2007

Does More Competition Raise Test Scores?

Competition may improve outcomes by raising test scores. Such achievement measures are important to parents, and can be used to hold schools accountable. Evidence from over 200 tests in 25 separate studies shows that competition does often have a modest beneficial effect on the academic outcomes of students in public schools. In many cases, test scores were higher where there was more competition. 
Studies identified this effect for each of the three choice domains, using competition measures such as the Herfindahl Index, the percentage of private-school enrollments, or other specific indicators. Correlations were made with test scores across many grades and for a range of school subjects. Evidence was drawn from across the U.S., at state, county, and district levels; individual student data were also used. 

However, the effects of competition are modest. Approximately three-fifths of the tests show no correlation between competition and test scores (only a trivial number found evidence of a negative relationship). The average effect of increasing competition by 1 standard deviation is to raise academic test scores in public schools by approximately 0.1 standard deviation. 

Does More Competition Improve Education in Other Ways?

Competition may enhance the performance of schools in other ways. This review identified 47 studies (over 220 tests) that used alternative performance criteria. Again, the studies used various measures of competition, with evidence across the three choice domains. Generally, these studies also show competition is beneficial. 
A number of studies correlate competition with educational attainment (years of schooling). If competition motivated schools to offer a better education, students may respond by remaining enrolled or by applying to college in greater numbers. Thus, the studies use either dropout rates, graduation rates, or college-attendance figures to shed light on the effects of competition. Although competition doesn't appear to affect dropout rates, an increase of 1 standard deviation in competition from private schools raises graduation rates in public schools by approximately 0.08 to 0.18 standard deviations. 

Eleven studies examine the relationship between competition and educational expenditures. More efficient districts operating in a competitive market may be allocated either higher subsidies (because they can produce more education) or lower funding (because they need less to produce a given amount). Unsurprisingly, no clear link between educational expenditures and competition is evident. 

Theoretically, competition should raise efficiency in the education sector (Hoxby 2000). Indeed, the evidence above suggests this: Competition raises test scores, but with no additional expenditures. Direct evidence from 13 studies shows that an increase of 1 standard deviation in private-school enrollments raises public-school efficiency by as much as 0.2 standard deviation. 

Greater competition may also influence how much teachers are paid. Available studies indicate teacher salaries are higher with more competition. An increase of 1 standard deviation in competition raises teacher salaries by around 0.1-0.3 standard deviation. Working conditions may also improve. When competition from private schools exist, the evidence suggests that class size in public schools is smaller. 

Finally, initial evidence from three studies suggests that when competition among schools is 1 standard deviation higher, the students' future earnings are higher by around 0.1 standard deviation (or 1 to 4 percent above average earnings). 

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