Rethinking the Welfare State: The prospects for ... - e-Library

Rethinking the selfare state 160
Another set of difficult design issues relates to whether vouchers should be of fixed or
variable value. If vouchers are of fixed value, then suppliers can be expected to “creamskim”
children who are relatively easy (and less expensive) to educate, while eschewing
children who require additional and/or more complex (and hence, more expensive)
services because they are gifted, learning disabled or come from disadvantaged
socioeconomic backgrounds. 154
One possible response would be to allow for unlimited-value vouchers, but this would
generate moral hazard problems on the part of demanders and suppliers, who can
externalize the cost of expensive education onto the state. Alternatively, a complex
scheme of calibrated vouchers that are adjusted by class of student and carry different but
limited values could be created. Most public education systems do, in fact, provide
differential subsidies to schools accepting special-needs students, but these values are not
explicit and are embedded within the system’s operating budget. While rendering these
subsidies explicit has the advantage of transparency, it also risks invidious political
debates about “pricing (commodifying) the price-less.” 155 However, these values could be
suppressed by creating different categories of vouchers without making the cost
implications explicit.
As discussed in the context of early-childhood education, an alternative mechanism to
address cream-skimming is mandatory pooling. If schools were required to enroll every
student who wished to attend (or in the case of over-subscription, hold a random lottery
for positions), as is the case with charter schools, then it would be more equitable to
simply assign a standard voucher value per student that allows for internal crosssubsidization.
156 Instead of trying to deal with the subtleties and nuances of valuation in
each individual case, we could rest assured that on average each school is receiving
approximately the appropriate level of per-student remuneration. One negative aspect to
this standard voucher value regime, however, might be that this may attenuate the
emergence of specialized schools oriented towards meeting the needs of higher-cost,
more resource-intensive students.
Another possible design response is to preclude for-profit suppliers from participating
in the voucher program. The belief is that by limiting participating institutions to those
which are organized solely on a non-profit basis, the incentive for cream-skimming will
be correspondingly reduced, and, as a consequence, the fixed-value voucher model
becomes more plausible. The difficulty, however, is in knowing with certainty that nonfor-profit
institutions will necessarily be less inclined to cream-skim. Bradford and
Shaviro liken the incentive structure of a non-profit organization to a black box,
contending that the objective functions of non-profit organizations cannot be modeled
accurately 157 Notwithstanding this view, it is wrong to take it to an extreme. It is unlikely
that non-profit institutions are irrational—they simply do not respond as predictably to
various incentives as profit-seeking organizations. In other words, non-profit
organizations have complex utility functions. Nonetheless, non-profit educational
institutions likely derive utility, inter alia, from providing a high-quality education to as
many children as possible while meeting their budget constraints. It is arguable that,
consequently, wherever they can save money they will strive to do so—not because they
seek to make a higher profit, but because they will be able to educate more students better
and thereby better fulfil their mandate. Thus, they may in practice engage in creamskimming
and to a lesser extent, chiselling activities that are often attributed to profit-