Introducing Competition in Public Services - the Case of the Swedish Compulsory School

Abstract: Abstract The subject of this thesis is introduction of competition in public services and its effects on public sector efficiency generally, and the Swedish compulsory school specifically. The issue is studied in a theoretical framework of institutional and transaction cost theory. A concentration ratio competition measure is developed, covering public and private competition, as well as competition between public schools. Efficiency is divided into costs and quality. Since quality is difficult to observe, student achievement – in the form of school level national standardized test scores from 2004 – is used as a quality measure instead. A fixed effects model is employed in the cost analysis on a panel data set of total school costs per student in the municipalities from 1998-03, whereas the effects on student achievement are estimated with a cross-sectional OLS model. No statistically significant effects are found on either costs or student achievement. Comparisons show that the cost results are similar to earlier studies made in a Swedish context. But the results of the student achievement analysis differ in certain respects. A likely explanation to this is the difference in data used. Suggestions to why the effect of competition is not more noticeable include the lack of measurability of school outputs and outcomes and the Swedish institutional arrangement, which disallows price competition and implies incentives for independent private schools to start up in high cost municipalities.