Entry and Exit
As in other markets, ease of entry and exit, by both consumers and providers, is crucial to harnessing the power of competition to generate efficiency and quality. However, in practice entry and exit may not be easy options. The costs of transportation limit the exit options for consumers, especially in education or regular healthcare visits, and in many isolated or rural areas exit options do not exist because the nearest alternative provider could be hours away. On the provider side, minimum scale requirements, especially for hospitals and secondary schools, make entry investments large, and the need to locate near target populations increases initial capital costs, especially in densely populated better-off neighborhoods where the cost of property and construction is large.15
Given sunk investments and high political costs, the barriers to exit are often higher than most advocates of quasi-markets expect (Betts 2005; Greener and Powell 2009, 366). One of the fastest ways to increase average school quality is to close the worst ones and move students to better schools. By allowing families to vote with their feet, voucher programs should make clear to policymakers which schools are underperforming and ripe for closure. However, in practice, the policy response is often the opposite—to increase funding and support for ‘problem schools.’ In Chile, municipal governments have stepped in to replace funding local schools lost through students (vouchers) who went elsewhere (Aedo 1998). If common, barriers to exit and soft budget constraints sap the energizing force of competition that quasi-markets are designed to infuse into school management.
In higher education, constraints on the functioning of quasi-markets are fewer where private provision is substantial because students are more mobile (at least within large cities, if not among them) and entry and exit are easier. And, in practice, several countries in the region have introduced quasi-market reforms in universities.16 For example, in the 2000s, Brazil began some initiatives in higher education that resemble voucher programs. In 2005, the government established ProUni (Programa Universidade para Todos—University for All)—a program that grants full and partial (50 percent) scholarships to low-income students in private col?leges in exchange for tax exemptions for the university (World Economic Forum 2014). The federal government also pays for tuition directly to private institutions through FIES (Fundo de Financiamento Estudantil— Student Loan Fund), a student loan program that dates back to 1999, but which boomed only after a warranty fund financed by a fee on tuitions and government funds was established in 2010. Currently, over half a million students receive ProUni scholarships and more than a million receive FIES student loans.17 It is estimated that, in present value terms, the students will pay back half of the real value of their loans to the government, similar to student funding programs in the United Kingdom (JP Morgan 2014).