How can policy balance the risk/reward of public entrepreneurship?

Fredrik Andersson and I’s recent work on voucher school failure prompted a couple folks to ask me what I would recommend as a policy response to voucher school failure.  It is a reasonable question with a few possible answers (Note, this is a preview of something Fredrik and I are working on).

First, there is the nuclear option.  The only way to prevent all voucher school failure is to not have voucher schools.  Entrepreneurship-based reform will not always work out, that is reality.  At this stage in the game this option is not very realistic nor productive in my opinion.

Second is limiting voucher programs to existing schools (like the initial roll out of the statewide program).   Our research showed start-ups are particularly failure prone, and getting rid of them would reduce failure rates significantly.  Such a policy could, however, stop new innovative providers.  I am not even sure I could call a voucher program limited to existing schools an education reform.

Third are reasonable barriers to entry for voucher schools.  In Milwaukee some of this exists under current policy, which is why failure rates are likely past their high point.  But I think different approaches are warranted.  One might be requiring schools to demonstrate diverse revenue streams prior to being granted access to government revenues. This may include private fundraising dollars, evidence of private-paying customers, or reserves equal to a percentage of a school’s budgeted revenues.  This requirement would help ensure that a nascent school would not fail at the first sign of fiscal stress

Another option might be requiring new entires to find an existing organization to sponsor their entry into the voucher marketplace. For example, if an entrepreneur wanted to open a new voucher school, he or she would first have to convince an existing provider of the soundness of their plan, and have that existing provider agree to enroll their pupils if the new school fails. The risk, of course, is that existing providers would be fearful of competition and refuse to sponsor new schools. This concern could be addressed by offering a financial incentive for the sponsoring school based on the performance of the new school

Or, new schools could be required to submit to a state entity (in the voucher case the state board of education or its equivalent), and obtain approval from said entity, of a transition plan to ensure the organization’s customers (i.e. students) and records are accounted for if the nascent organization fails. While this would not present a school failure, it would minimize the externalities of a school failure without stopping entrepreneurship.  The ongoing soundness and feasibility of the plan could be part of the required independent audit for MPCP schools.  This would be an improvement under current law, which requires failed schools to pass on their records, but really doesn’t have any teeth.

These are just a few ideas I’ve been tinkering with. The question posed in the title to this post is one that I think deserves more attention, and not just in education.


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