In the last couple of years, the qualifications systems in England, Wales, and Northern Ireland – all of which allow schools to choose between multiple examination boards – have faced criticism from politicians and in the media. Many argue that qualification and assessment choice introduces perverse incentives for exam boards to decrease standards and inflate grades in a ‘race to the bottom’.

To address these concerns, some support abolishing independent exam boards in favour of a single government board. Others have suggested a franchising model under which boards would compete for politicians’ business to deliver qualifications and examinations on a fixed-term contractual basis only.

From an economic perspective, whether or not a service should be outsourced depends on who can deliver it most efficiently. This, in turn, depends on external transaction costs – the costs of monitoring to ensure that the service is provided in accordance with the buyer’s expectations. If the total price for purchasing the service externally, including the transaction costs, is lower than in-house production costs, it makes more sense to go for outsourcing.

A key aspect of this is the level of ‘contract incompleteness’. Many quality aspects of complex public services are difficult to measure, which makes it difficult to hold external providers to account. If this is the case, outsourcing could in fact lead to lower quality.

In practice, however, most public services do not warrant government provision on this basis. This includes qualifications and assessment where there are few non-measurable elements involved, considerable scope for innovation, and strong reputational mechanisms to ensure that boards do not cut corners. Nationalising exam boards would just raise costs and decrease innovation.

But should the government or schools choose the exam board? In the franchising alternative, government would pick winners via a tendering process, in contrast to the current user-choice model where schools do the choosing.

The case for choice rests on the assumption that it improves matching between pupils and the qualifications offered, while also generating stronger competitive pressures among exam boards.

Yet, in some situations, choice may not generate the desired outcomes. For example, the impact of competition on quality depends on how schools weight quality vis-à-vis price. If they are very sensitive to price, exam boards may focus on competing along this margin – which could potentially decrease quality.

Still, there is no evidence that the existing model has produced a race to the bottom. Given the strict regulatory framework in place, this is not surprising. Certainly, the equivalency framework and the way school league tables are constructed have incentivised schools to choose what they perceive to be easier subjects – a problem that would remain if choice between exam boards were abolished. At the same time, there is little evidence of excessive price competition in the current system either; rather, independent exam boards have invested heavily in technology to increase the effectiveness of the overall system.

Rather than abolishing the qualifications market, it would therefore be preferable to improve it. Instead of seeking strict comparability, the accreditation framework could focus on specified minimum standards. Boards could then compete by providing higher, but not lower, standards in national and alternative qualifications. With such as focus, it would also be possible to lower the regulatory barriers to new providers, which would provide stronger incentives among existing providers to compete and innovate. It would then also be useful to reform league tables to avoid perverse incentives. For example, outcomes could be published separately for different qualifications.

The goal should be to improve the market – not to abolish it.

 

This article will appear in the forthcoming edition of EA Magazine.