Municipal and Private Sector Response to Decentralization and School Choice - Chile

Winkler, R.; W.; Rounds, T.,
Economics of Education Review, Vol. 15, No. 4,
1996

• Cost-Effectiveness
• Conclusions
• Acknowledgements

4.4. Cost-Effectiveness

While the unit costs of primary-secondary education have decreased since the reform, the evidence on educational outcomes is mixed with some evidence of declines in test scores for all types of schools between 1984 and 1988." The ambiguity of the achievement data also make it difficult to determine changes in efficiency in the use of resources. Nothing can be concluded from the fact that education expenditures have declined more rapidly than test scores over the past decade, for while there has been some reduction in real school inputs, the principal consequence of reduced expenditures has been reduced teacher pay. Similarly, the observation that test scores are higher and per pupil expenditures are lower in subsidized private compared to municipal public schools says nothing about the efficiency of these school types in producing new cognitive knowledge, for students in subsidized private schools also have home environments that are more conducive to learning and have a higher level of knowledge upon starting school than do students in municipal public schools.

The education reform introduced competition between schools for students. As opposed to the usual monopoly model of public education, competition should increase efficiency in producing those educational outcomes which influence school choice." In the particular case of Chile, it could be argued that the incentives for maximizing performance are more transparent and direct for private than public schools. The owners/directors of private schools can directly benefit from the increased enrollments which result from better performance, while the principal benefit to public schools from increased enrollments is reduced municipal finance; public school managers may in fact find that increased enrollments makes for extra work." If this argument is true, one would expect to find private schools performing better than public schools.

In what follows, we specify a crude model of student learning and attempt to estimate the relative effectiveness of public and private schools in Chile. The performance of public and private schools has by now been examined in several important empirical studies, beginning with Coleman et al.¹. However, lack of adequate data have limited the number of such studies for developing countries." The data for Chile have several flaws that constrain the validity of the empirical analysis. First, our observations are at the municipal and not the individual student level. Second, the sample consists only of the 70 largest municipalities in the country." Third, the measures of current (grade eight) and lagged educational achievement (grade four) are for different students within the same municipality," and we have school input data for only one year (1989). Thus, we make the strong assumption that student cohorts do not differ and school inputs are perfectly correlated over time. Finally, our measures of home and school environments are not very rich.

We assume the usual model in which achievement is determined by prior or lagged achievement, the home environment, and the school environment. Since the sample size is small, consisting of 70 municipal-level observations of public schools and 70 municipal-level observations of subsidized private schools, the estimated parameters are constrained to be identical for public and private schools, excepting school expenditures, where including a separate variable for private school expenditures permits a test of the hypothesis that private and public schools are no different in their productivity.

Controlling for fourth grade achievement, school expenditures significantly affect eighth grade achievement; in addition, the magnitude of the effect is about 30% larger for private than public schools. Overall, however, the magnitude of the expenditure effect is small." To bring about a 5% improvement in eighth grade achievement would require a 32% increase in public school spending or a 27% increase in private school spending.

While aggregate data, a small sample, and weak measures of the student's home environment suggest caution in drawing strong conclusions from these findings for Chile, these results are consistent with other empirical work comparing public and private schools, which typically finds private schools to have a small edge in cost-effectiveness. The principle difference is one of context-despite the fact that both public and private schools in Chile compete for students, private schools are still slightly more cost-effective.

5. Conclusions

Education reform in Chile had two principal characteristics which are popular among reformers in other countries today: decentralization of the provision of educational services and introduction of choice and competition. The reform had several results:

1. municipalities provide a small share of total public school financing, but inter-municipal variations in fiscal capacity generate inequities in per pupil school expenditures;
2. the relatively large size of the central government school attendance grant (almost 90% of total financing) ensures all pupils receive a relatively high minimum level of school services;
3. in the short run, introduction of the voucher program led to large numbers of schools changing status from paid private to subsidized private, resulting in significantly higher government-financed education spending;
4. in the long run, reductions in the real value of the voucher led to paid private schools regaining their earlier market share;
5. the subsidized private market share has consistently grown, despite reductions in the real value of the voucher and despite approximate parity with municipal schools in terms of test scores (controlling for socio-economic status). The model estimated here suggests parents select private schools based on the characteristics of their students; since the demand for private schooling increases with socio-economic status, private schools have a continuing advantage in terms of student background characteristics; and
6. subsidized private schools appear to be more cost-effective than municipal schools. While test scores, controlling for socio-economic status, are approximately equal in municipal and subsidized private schools, unit costs are lower in private schools. Also, the model estimated here provides evidence that additional monies spent in subsidized private schools yield slightly higher returns than those spent in public schools.

Since the design and implementation of the Chile reform occurred in a setting that did not permit political opposition, they are unlikely to be easily replicated in other countries. In addition, Chile has had several institutional advantages in implementing the reform. By the standards of other developing countries, management capacity at both the central and municipal level is relatively high, and the degree of public corruption is perceived to be low.''' As a result, it was possible to implement a financing mechanism which requires accurate counts of numbers of students in the classroom and which effectively penalizes schools for inaccurate reporting. Also, over the past two decades the Chilean public sector has become sophisticated in the use of contracting to purchase specialized expertise that would not otherwise be available (e.g. municipalities contracting consultants to develop the detailed plans required to obtain central government financing of capital investment.)

Sound financial management has also been important in implementing the decentralization component of the reform. All levels of government in Chile use the same standardized government accounts for budgeting and expenditure reporting, with municipal expenditure reports submitted on a monthly basis to the Finance Ministry. This financial information system provides the basis for periodic audits of municipal accounts by the country's Controller General, and helps ensure that central government grants are used as intended.

Finally, Chile is the only country in Latin America to have a national system of student testing. In principle, this can provide both municipalities and parents with information on their school's performance. In practice, until recently the results were not widely disseminated, and parents seldom knew either their school's or their child's performance."

Acknowledgements

This paper was prepared for the International Symposium on the Economics of Education in Manchester, England, 18-21 May 1993. The symposium was jointly sponsored by The World Bank, the Overseas Development Administration (ODA) and British Council of the U.K., and the Deutsch Gesellschaft fuer Technische Zusammenarbeit (GTZ) of Germany. The views contained in the paper are the authors' own and should not be attributed to the Government of Chile, The World Bank or their affiliated organizations.

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