Working Paper No. 1143

Marketized Education: How Regulatory Failure Undermined the Swedish School System

Published: December 2, 2016, revised October 2017Pages: 36Keywords: School choice; grade inflation; institutions; hazardous adjustmentJEL-codes: D02; D62; I28

Marketized Education: How Regulatory Failure Undermined the Swedish School System Johan Wennström


In a radical school choice reform in 1992, Sweden’s education system was opened to private competition from independent for-profit and non-profit schools funded by vouchers. Competition was expected to produce higher-quality education at lower cost, in both independent and public schools. This article analyzes whether the school choice reform was institutionally secured against school competition based on phenomena that are unrelated with educational quality. Interviews with senior policy makers reveal that the architects of the reform overemphasized the virtues of market reforms and therefore did not deem it necessary to establish appropriate rules and institutions for school competition. Instead, ill-conceived grading and curriculum reforms paved the way for moral hazard resulting in grade inflation and other forms of unintended school competition. The lesson from Sweden’s experience is that market reforms of public services production, particularly those that introduce for-profit producers, must account for how institutions and incentive structures affect behavior.

 

Johan Wennström

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An Agenda for Europe

Institutional Reform for Innovation and Entrepreneurship

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The authors of this book, Niklas Elert, Magnus Henrekson and Mikael Stenkula, advise the economies of the European Union to become more entrepreneurial in promoting innovation and economic growth. The authors propose a reform strategy with respect to several aspects to achieve this goal.

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