Principal Agents

I was talking to Mark about his post on retnetion policies in large corporations. One item came up that I think is quite interesting. Both schools and publically traded companies have a serious principal agent problem. In the case of the schools, the principals and school board act on behalf of the taxpayer. In the case of the publically traded company, the CEO and board act on behalf of shareholders.

One thing that we see in large companies is that it is impossible to completely eradicate the conflicts of interest that are so posed. Management will try to optimize their outcomes (see CEO pay) even whe it might not be in the best interest of the shareholders (see Mark's post).

In the same sense, it would be naive to assume that you won't have some of these principal agent problems happening in any publicly funded educational system. I suspect that this is the price we have to pay for having a universal education system. Shifting our education system to a more corporate model isn't going to remove these issues -- it is only going to change who the winners and losers in the system are.

Should we tolerate these issues? Why not private schools (with a much more direct link between the education producer and consumer)? I think the real reason is that a broadly educated population is a public good and that there are always going to be inefficiencies in providing public goods. We all know of cases where road construction was less than ideal (in terms of contractor extracting extra value). But that doesn't mean we whould either abandon roads entirely or go to subscription-based roads.

The trick here seems, to me, to be to develop an education system that provides high quality outcomes. Mark keeps asking why the Canadian model isn't more widely studied given that they have issues with a multi-cultural population, geographical distance, and english as a second language students. I think the conversation would benefit from seeing more about how they handle this principal agent issue.