‘Competition, incentives and public school productivity.’
Journal of Political Economy 88, pp. 1871-1892
Creates a simple model in which public schools find it optimal to reduce quality in the face of increased competition.
While other papers find that competition may reduce public school quality through adverse peer effects, McMillan’s paper abstracts from peer effects completely.
In his model, rent-seeking public schools may move ‘down-market’ in response to an increase in competition, reducing effort because private schools will now take the ‘best’ pupils
If vouchers are ‘targeted’ (i.e. given only to low-income households), however, the perverse effect disappears; public schools will definitely increase effort.
