12/28/2016 04:07 pm ET Updated Dec 29, 2017

Paying the Price of Imperfect Information

Poor quality and inaccessible information about school performance is preventing parents and governments from making good choices about different schooling options

Private education is a high stakes investment for both parents and governments
All over the world parents are making decisive schooling choices for their children. In South Africa, for example, a 2013 study of over 1,400 primary age children from Soweto, near Johannesburg, found that only 18 percent are attending the school closest to their home. This study, together with the growing number of private schools in South Africa, shows that parents are choosing to make substantial financial investments in pursuit of high-quality education. Such a strong belief in education as a means to escape poverty is promising for the life chances of South Africa's children and indeed for the future of that nation's economy. But for the investment to be realized, the private schools parents choose for their children need to giving them a high-quality education.

And it's not just parents who are paying for private education. In many parts of the world governments are starting to fund non-state school operators, through vouchers, subsidies or contract management agreements, like charter schools or academies. With parents and governments investing heavily in private education, ensuring open and accessible information about school quality - both public and private schools - should be an urgent priority for governments and donors.

Information imperfections disadvantage poorer parents
Market theory says that this kind of consumer choice - a thriving private sector competing with a previously monopolistic government provision - should raise standards and improve learning for poor children. But competition-driven market theory will only be effective in education if the market imperfections caused by poor and weak information are corrected. Information imperfections are particularly acute in education because parents, particularly those on low incomes and with low levels of education themselves, are often poorly informed about school quality. School choice is difficult for any parent. Many school systems do not conduct standardised tests. When they do, scores may not be made public and tend to be confusing and difficult to compare. This means that parents all over the world make school choices for their children with information based on brand and perception, rather than learning outcomes. Parental information is generally, by nature, imperfect and asymmetric.

Without easy access to school attainment data, children from poorer families will not benefit optimally from the increased school choice, public and private, that comes from the growing private sector. Indeed, there is even a risk that parents unintentionally enroll their children to in private schools that are actually lower performing than free local government schools.

Governments and parents must be able to make informed choices about private schooling
The duty of government should be to guarantee that every child receives a high-quality education, and to support parents to make good and informed choices about their children's schooling, backed by reliable and accessible data. There is a developing body of evidence that shows when parents have access to information about how their child is doing in school, and how children are doing in other schools, it can lead to better learning outcomes. A 2016 study from Pakistan, for example, showed that giving parents information about their child's school and progress in school led to improved test scores, lower fees in the private schools in the village and higher primary school enrollment.

The growing number of governments who are funding vouchers or other initiatives that allow children to attend private schools subsidized by the state should take note of this study.

Informed parental choice is firmly in the interests of the state. Performance and costs of schooling has significant implications for public finances. With the many competing priorities for limited public resources, governments must ensure value for money. Some finance and education ministers have taken note that private schools can educate students at a significantly lower cost per children than government schools can. Consequently, voucher-style PPPs are emerging in many parts of the world.

The Philippines recently launched an ambitious initiative that will create two million new state-funded school places in private schools. And the results of Muralidharan and Sundararaman's double randomised trial in Andhra Pradesh, India, a seminal study for its scale and rigour, support policies that use government funds to send poor children to private schools. The private schools in the study achieved similar test scores (compared with government schools) in basic subjects, with less instructional time, using the remaining time to increase test scores in other subjects. Furthermore, these results were achieved at a much lower cost, did not disadvantage the students who remained in public schools and did not benefit children from richer families more than their poorer peers.

Of course, there's no such thing as a magic bullet. Vouchers should provide better parent-level accountability, but only if parents can exercise informed choice
Vouchers certainly seem like they hold potential as a policy option for governments wanting to improve quality and reduce inequity in education systems. But the devil is in the detail, and more literally in the parent and state accountability mechanisms. It is complex and hard to get right. A voucher alone is not going to transform learning outcomes.

The theory behind vouchers suggests that programmes should improve learning among children from low-income communities through four channels, all related to consumer choice and better parent and state-level accountability. First, vouchers enable dissatisfied parents to move their children from poorly performing schools to better schools. Second, vouchers break inefficient public school monopolies by introducing competition from the private sector, challenging public schools to improve and reignite parental demand. Third, private schools are incentivized to improve quality as a means to attract more voucher-owning students. Fourth voucher schools are accountable to the state for the learning outcomes that they deliver for children.

But the voucher theory will not, and in some cases has not, proven successful without clear and accessible performance data made available to parents and public sector leaders. Without evidence and monitoring, students may migrate from better public schools to poorer private schools; public schools need not respond to the competition from private schools; and private schools will be incentivized to attract students though means other than better education quality. In other words, if the information imperfections are not corrected, the educational returns to the significant investment in private schools by both parents and governments will be limited.

A zero-sum improvement is not the only risk
While intuitively the presence of the voucher should reduce inequality by removing financial barriers to parents, research from Ghana warns further of the dangers presented by information imperfections in school choice programmes. The study showed that parents with low levels of education or income, or with children in low quality primary schools, were more likely to make ex-post judgment errors in the school choice process and less likely to apply to the highest quality schools. This resulted in children from poor families attending lower quality schools than their richer peers, deepening not reducing existing educational inequalities. Greater school choice should deliver positive educational returns, but these acute information imperfections need to be corrected urgently to prevent potentially transformative initiatives from being derailed.

A thriving non-state education sector, working in partnership with and regulated and financed by government, has the potential to improve learning for children from poor communities. But for this potential to be realised, school performance data, particularly student attainment, needs to not only be more reliable, but also clearly presented to parents and policy makers. It is only then that investment in private education, be it parents through school fees, or by governments through vouchers or other forms of public private partnerships, will deliver the returns that will give all children the best possible opportunity to achieve their potential.