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Private School Chains in Chile: Do Better Schools Scale Up?, Cato Policy Analysis No. 682

Private School Chains in Chile: Do Better Schools Scale Up?, Cato Policy Analysis No. 682

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Published by Cato Institute
There is a persistent debate over the role of scale of operations in education. Some argue that school franchises offer educational services more effectively than do small independent schools. Skeptics counter that large, centralized operations create hard-to-manage bureaucracies and foster diseconomies of scale and that small schools are more effective at promoting higher-quality education. The answer to this question has profound implications for U.S. education policy, because reliably scaling up the best schools has proven to be a particularly difficult problem. If there are policies that would make it easier to replicate the most effective schools, systemwide educational quality could be improved substantially.

We can gain insight into this debate by examining Chile's national voucher program. This paper uses fourth-grade data to compare achievement in private franchise, private independent, and public schools in Chile. Our findings suggest that franchises have a large advantage over independent schools once student and peer attributes and selectivity are controlled for. We also find that further disaggregating school franchise widens the larger franchise advantage. We conclude that policies oriented toward creating incentives for private school owners to join or start up a franchise may have the potential for improving educational outcomes.
There is a persistent debate over the role of scale of operations in education. Some argue that school franchises offer educational services more effectively than do small independent schools. Skeptics counter that large, centralized operations create hard-to-manage bureaucracies and foster diseconomies of scale and that small schools are more effective at promoting higher-quality education. The answer to this question has profound implications for U.S. education policy, because reliably scaling up the best schools has proven to be a particularly difficult problem. If there are policies that would make it easier to replicate the most effective schools, systemwide educational quality could be improved substantially.

We can gain insight into this debate by examining Chile's national voucher program. This paper uses fourth-grade data to compare achievement in private franchise, private independent, and public schools in Chile. Our findings suggest that franchises have a large advantage over independent schools once student and peer attributes and selectivity are controlled for. We also find that further disaggregating school franchise widens the larger franchise advantage. We conclude that policies oriented toward creating incentives for private school owners to join or start up a franchise may have the potential for improving educational outcomes.

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Executive Summary 
There is a persistent debate over the role of scale of operations in education. Some arguethat school franchises offer educational servic-es more effectively than do small independentschools. Skeptics counter that large, centralizedoperations create hard-to-manage bureaucra-cies and foster diseconomies of scale and thatsmall schools are more effective at promotinghigher-quality education. The answer to thisquestion has profound implications for U.S.education policy, because reliably scaling up thebest schools has proven to be a particularly dif-ficult problem. If there are policies that wouldmake it easier to replicate the most effectiveschools, systemwide educational quality couldbe improved substantially.We can gain insight into this debate by ex-amining Chile’s national voucher program.This paper uses fourth-grade data to compareachievement in private franchise, private inde-pendent, and public schools in Chile. Our find-ings suggest that franchises have a large advan-tage over independent schools once student andpeer attributes and selectivity are controlled for.We also find that further disaggregating schoolfranchise widens the larger franchise advantage.We conclude that policies oriented toward cre-ating incentives for private school owners to join or start up a franchise may have the poten-tial for improving educational outcomes.
 Private School Chains in Chile
 Do Better Schools Scale Up? 
by Gregory Elacqua, Dante Contreras, Felipe Salazar,and Humberto Santos
No. 682August 16, 2011
Gregory Elacqua is the director of the Public Policy Institute, School of Business and Economics, Universidad Diego Portales; Dante Contreras is professor of economics at the School of Business and Economics, Universidadde Chile; Felipe Salazar is a researcher at the Center for Comparative Education Policy; and Humberto Santosis a researcher at the Public Policy Institute, School of Business and Economics, Universidad Diego Portales.
 
Introduction
The optimal scale of operations of schoolsis a hotly debated issue in current education-al policy reform discussions. One view is thatlarger schooling operations offer educationalservices more efficiently than small indepen-dent schools. Proponents argue that increas-ing the size of schooling operations wouldlower per pupil costs and free up resourcesfor use at the school and classroom levels.
1
 Researchers also claim that large privateschool franchises promote the creation of sound institutional environments in mem-ber schools.
2
 Advocates of large school chains alsomaintain that such chains have an easiertime gaining credibility and legitimacy inthe community,
3
and that larger schoolingoperations have more opportunities to ac-cess private investments to expand than dosmaller ones.
4
 These assertions have sparked two differ-ent trends in school management: consoli-dating public school districts and increas-ing public funding for private and charterschool franchises and Educational Manage-ment Organizations. Despite a growing pop-ulation, more than 100,000 school districtshave been eliminated since 1938, a declineof nearly 90 percent.
5
There is also a grow-ing number of private and charter schoolpartnerships and Educational ManagementOrganizations in the United States.
6
For in-stance, Edison Schools, the United States’largest for-profit manager of schools, hasbecome one of the nation’s largest charterschool management organizations and hasincreased from slightly more than 200 char-ter schools in 1995 to more than 3,600 char-ter schools in 2006.Critics fear that these reforms could havepotential negative unintended consequenc-es. They argue that large, centralized opera-tions will create hard-to-manage bureaucra-cies and foster diseconomies of scale due toassociated problems of managing complexorganizations and maintaining a sense of order.
7
Opponents are also concerned thatlarge schooling operations will make it dif-ficult to create a sense of community amongstudents, parents, teachers, and adminis-trators.
8
Others are concerned that largerschooling operations encourage more stan-dardization and less innovation.
9
Some have argued that reducing the sizeof schooling operations is a more effectiveway to improve educational outcomes. They claim that small schools can improve thequality of education by creating intimatelearning communities where students areencouraged by educators who know them.
10
 Small school advocates also argue thatsmaller schools foster cooperation betweenteachers, school administrators, and parentsand higher trust in the school community.
11
Following these insights, many currentproposals for reform in the United Statesshare a vision of small, autonomous schools,encouraged to strengthen school communi-ties.
12
The small schools movement has alsomade significant progress in recent years.For example, the Bill and Melinda GatesFoundation invested more than $1 billion todivide large urban high schools in the UnitedStates. These resources partly funded the cre-ation of 197 small high schools in New YorkCity alone.
13
 Much of the existing empirical evidenceon the optimal size of schooling operationsis mixed and often clouded by methodologi-cal limitations.
14
The research that examinesthe benefits of private school franchises ver-sus small independent schools also suffersfrom thin data because it derives from theevaluation of small-scale programs. For in-stance, in its evaluation of Edison Schools,which was not a randomized study, research-ers found that the performance of theseschools varies.
15
Similarly, the evaluations of the small high schools funded by the GatesFoundation also suggest that there is wide variation in the quality of these schools.
16
 The evidence on private school franchis-es and small private independent schools islimited because most educational systemsonly provide funding to public schools.
17
 
2
The evidence onprivate schoolfranchises andsmall privateindependentschools is limitedbecause mosteducationalsystems only provide fundingto public schools.
 
We can gain insight into the distinctstrands of arguments on the optimal size of schooling operations by examining Chile’snational voucher program. In 1981 Chilebegan financing public and most privateschools with vouchers. Private voucherschools currently account for over 50 per-cent of total enrollment and about one thirdof these schools belong to private voucherschool franchises. This paper compares theachievement of fourth-graders in private voucher franchise, private voucher indepen-dent, and public schools. The results present-ed in this study provide suggestive evidencethat, all else being equal, private voucher fran-chise schools are more effective than private voucher independent and public schools.
Background on Chile
During the 1980s, the military governmentin Chile (1973 to 1990) instituted a sweepingeducation reform package. First, the govern-ment decentralized the administration of pub-lic schools, transferring responsibility for pub-lic school management from the Ministry of Education to municipal governments, whosemaximum authority is the mayor. Second,the government introduced a flat per-pupil voucher scheme. Municipalities and privateschools that did not charge tuition started toreceive a per-student voucher for every child at-tending their schools. As a result, enrollmentlosses began to have a direct effect on theireducation budgets. Elite private schools thatcharged tuition continued to operate withoutpublic funding.Education in Chile has become increas-ingly privatized since the voucher reformswere introduced. In 1979, 12 percent of Chil-ean K–12 students attended private schoolsthat received some public subsidy, and an-other 7 percent attended unsubsidized pri- vate schools. By 1990, 32 percent of studentsattended private voucher schools. By 2009,enrollment in such schools had reached 48percent. Adding in the 7 percent of studentsin elite private nonvoucher schools leavesa majority of Chilean students in privateschools (see Figure 1).The essential features of the national voucher system have remained in place forover three decades. The democratic govern-ments in power since 1990 have chosen to fo-cus on improving the quality of poor schools
3
In 1981 Chilebegan financingpublic and mostprivate schoolswith vouchers,and private voucher schoolscurrently account for over50 percent of total enrollment.
Figure 1Enrollment Share in Private and Public Schools (1979–2009)
Sources: Government of Chile, Ministry of Education, http://ded.mineduc.cl/DedPublico/archivos_de_datos andhttp://www.simce.cl/index.php?id=448, and authors’ calculations.
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