The Effects of Competition on Educational Outcomes (page 3)

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

How Reliable and Valid is the Evidence on Competition?

The results generally suggest that modest gains in achievement and other school-quality measures result from greater competition. Several cautions regarding the reliability and validity of this evidence must be noted, however. 

First, there may be biases in the estimation method. All the datasets used were cross-sectional, not derived from an experimental research design. Educational quality and competition may be determined simultaneously: Where school quality is low, more families choose private schools, so it only appears that competition influences school quality. Also, the studies may have insufficiently controlled for other factors, such as the financial status of the district. Both biases raise the likelihood that the relationship between competition and quality is correlational, not causal. Nonetheless, direct investigations of these biases find that alternative estimation methods do not offer much advantage. 

Second, sensitivity tests may be applied to the key variables measuring competition and educational outcomes. Many studies report both significant and insignificant correlations, often for equally plausible models. This spread of results suggests that the effects of competition are sensitive to the model reported. It also raises the possibility that only studies with statistically significant results have been published. However, such publication bias is not easy to document. 

Third, it is important not to double-count the findings or overestimate their significance. Some of these benefits may actually be the same benefit measured differently. So, where test scores are higher from competition, it may be expected that subsequent earnings will be higher, for example. And, the significance of these effects may be hard to estimate because they may not endure; the persistence of any competitive pressures is unknown. 

What are the Policy Implications of This Evidence?

Overall, the evidence discussed here suggests that increasing competition-either intradistrict, interdistrict, or from private schools-may raise effectiveness and efficiency of public schools, as well as address other educational objectives. The substantive effect will not be dramatic, but it will be in a positive direction. Before implementing a pro-competitive policy, however, legal and political conditions should be considered. Some state laws prevent subsidies to private schools, for instance, and some political groups are strongly opposed to competition. 

The federal No Child Left Behind Act provides direct funding for choice programs. It also requires schools that are not making Adequate Yearly Progress or that are identified as unsafe to offer more choices, thus promoting competition and allowing parents to make more informed decisions. Other options are voucher programs or incentives to private schools (Howell and Peterson 2002). Decentralization or the subdivision of large school districts may also stimulate competition. Each of these reforms will have other consequences, too. 

Although some studies establish benefits of competition, by and large they fail to consider any reorganizational costs required to promote competition. There is scant data on how much it costs to foster, regulate, and monitor competition, and on how to maintain competition. Competition reform requires money, and these financial costs of fostering competition must not be ignored. Since the 1940s, the number of school districts has been falling while the number of private schools has stayed largely constant; introducing competition would thus mean reversing a historic trend (Kenny and Schmidt 1994). Effecting an increase of 1 standard deviation in competition would require either large-scale reform to directly offset this trend toward larger districts or a clear incentive to private schools. 

Finally, equity issues need to be considered. If low-income families benefit most, then such a reform may be redistributive. However, the financial burden placed on parents will depend on whether competition is encouraged through private schools or within public schools. 


Belfield, Clive R., and Henry. M. Levin. "The Effects of Competition between Schools on Educational Outcomes." Review of Educational Research 72 (June 2002): 279-341. 

Borland, Melvin V., and Ray M. Howson. "On the Determination of the Critical Level of Market Concentration in Education." Economics of Education Review 12, 2 (June 1993): 165-69. EJ 465 340. 

Howell, Patrick, and Paul Peterson. The Education Gap. Washington, D.C.: Brookings Institution, 2002. 275 pages. 

Hoxby, Caroline M. "Does Competition among Public Schools Benefit Students and Taxpayers?" American Economic Review 90, 5 (December 2000): 1209-38. 

Kenny, Larry W., and Andrew B. Schmidt. "The Decline in the Number of School Districts in the U.S.: 1950-1980." Public Choice 79 (January 1994): 1-18. 

Teske, Paul, and Mark Schneider. "What Research Can Tell Policymakers about School Choice." Journal of Policy Analysis and Management 20, 4 (2001): 609-31.

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