Comparisons of Private and Public Schools: The Critical Role of Regulations

Abstract

The rising cost of publicly provided social services had led many analysts to conclude that government agencies are inefficient suppliers of services, both because they do not maximize output from existing resources and because they respond only very sluggishly to changes in the level and composition of demand. These analysts often couple this diagnosis with the prescription that private nonprofit organizations should play a larger role in delivering many social services. In debates over the wisdom of this type of reform, advocates often introduce statistical evidence on the comparative performance of public and private organizations, concluding as a rule that the performance of the private providers is superior. The central theme of this chapter is that much of the performance differences between public and private providers of social services stems from differences in the regulations they face, and the resulting differences in the characteristics of the clients they serve. The evidence in support of that conclusion presented here focuses on one social service, education. The reasons are twofold: The data on the determinants of performance in that sector are of relatively high quality and the issue of governmental policy toward private sector providers of educational services is currently a topic of much public interest. But, as I intend to show, the themes developed in the context of the education sector have relevance in other sectors as well, especially as one confronts the problem of designing an appropriate set of regulatory policies. A recent, highly publicized study reported that the education offered in private high schools is of higher average quality than the education offered in public high schools. The analysis in this section demonstrates that a large part of the observed quality difference is due to differences in the composition of student bodies, and that these differences stem to a significant extent from differences in the regulations pertaining to public and private schools.