Competition in the sandbox: A test of the effects of preschool competition on educational outcomes

The emergence of publicly subsidized preschool raises important policy questions about the role of market forces and, in places where competition to provide these services exists, presents a setting in which the effects of competition on educational outcomes can be tested. We test neo‐institutional hypotheses concerning the effects of competition to provide publicly‐funded prekindergarten (pre‐k) services on the performance of public schools and private organizations. We use student‐level data collected over a five‐year period on a large sample of children who attended publicly subsidized prekindergarten in Georgia. Overall, we find that more competition improves third grade reading and math test scores but does not significantly affect retention or school readiness ratings during elementary school. Not all children are equally affected by competition; for example, greater competition significantly decreases the likelihood of retention for children of the working poor. Contrary to the expectations of some theorists, both public schools and private organizations respond to increased competition in ways that improve test scores but not retention. However, children attending private prekindergarten have higher language arts scores and lower retention across the range of competition when compared with children who attended public school pre‐k. © 2006 by the Association for Public Policy Analysis and Management