Empirica (2013) 40:607634

DOI 10.1007/s10663-012-9195-6
ORIGINAL PAPER

Competition and educational quality: evidence

from the Netherlands
Elbert Dijkgraaf Raymond H. J. M. Gradus
J. Matthijs de Jong

Published online: 8 July 2012

The Author(s) 2012. This article is published with open access at Springerlink.com

Abstract Little evidence is available for the effect of competition on educational

quality as only a few countries allow large-scale competition. In the Netherlands,
free parental choice has been present since the beginning of the twentieth century
and can be characterized as a full voucher program with 100 % funding. Based on
micro panel data for the Netherlands, we show that there is a relation between
competition and educational outcomes in secondary education, but that it is often
negative and small, sometimes insignificant but never positive. This effect is larger
for small and medium-sized schools and for schools that do not have a Protestant or
Catholic denomination.
Keywords

Competition  Private schools  Scale  Quality  Secondary education

JEL Classification

H70  I20

Electronic supplementary material The online version of this article (doi:10.1007/s10663-0129195-6) contains supplementary material, which is available to authorized users.
E. Dijkgraaf (&)
Erasmus School of Economics, Tinbergen Institute, Room H 8-21, P.O. Box 1738,
3000 DR Rotterdam, The Netherlands
e-mail: [email protected]
R. H. J. M. Gradus
Research Institute for the CDA and Faculty of Economics and Business Administration,
VU University Amsterdam, De Boelelaan 1105, Room 1E-66, 1081 HV Amsterdam,
The Netherlands
e-mail: [email protected]
J. M. de Jong
SEOR and Erasmus School of Economics, Erasmus University Rotterdam, Room H 7-25,
P.O. Box 1738, 3000 DR Rotterdam, The Netherlands
e-mail: [email protected]

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1 Introduction
The literature discusses whether competition between schools increases the quality
of educational outcomes. Friedman (1962) claimed that school choice policies
promise to align the incentives of school management with demand. Positive effects
on educational outcomes can occur if students choose schools with higher quality
levels. This increases the incentives for schools to invest in the quality of the
primary process to improve educational outcomes. From a theoretical point of view,
a negative effect of competition on quality is also possible. In practice, many other
characteristics influence school choice. If, for instance, students look more at their
friends choices or at the attractiveness of sports programs, the link between school
choice and quality might be very different. Schools might choose to invest time and
money in characteristics appreciated by potential students which are not related to
the (direct) quality of education and might see greater benefits in marketing
themselves to prospective students than in improving their programs. In this case,
the effect of competition on educational outcomes might become negative since less
time and money are available for the primary process. In addition, measuring and
interpreting quality might not be straightforward and costless for students and their
parents. Which effect dominates is a matter for empirical analysis.
In many cross-country studies differences in economic growth have been related
to school attainment, years of schooling and school autonomy and decentralization
and there is evidence for a significant positive relation between (cognitive) skills
and economic growth [see for an overview Hanushek and Woessmann (2011)]. In
addition, cross-country comparison indicates that students in countries with a larger
share of privately managed schools (and public school funding) tend to perform
better on average Woessmann (2009) and Maslowski et al. (2007). Recent macro
evidence corroborates the conclusion that this seems due to a causal effect of
private-sector competition measured by the share of students attending privately
operated schools (West and Woessmann 2009). Nevertheless, the share of private
students is only a weak proxy for competition.
In addition, based on panel data empirical analysis of the effect of competition on
the quality of educational outcomes is scarce due to the absence of micro data and
large-scale competition in many countries. A few examples make this clear. Hoxby
(2000) uses the concept of Tiebout choice, that parents choose between US school
districts based on the quality differences between schools, to test this hypothesis.
Her result suggests that competition enhances quality for elementary and secondary
education. However, Rothstein (2007) shows that her results are sensitive to the
construction of the competition variables and claims that alternative constructions
yield insignificant results. Moreover, Rothstein (2007, p. 2034) finds that Hoxbys
specification is subject to selection bias because the sample excludes private school
students. These criticisms are disputed in Hoxby (2007), but the discussion is still
unsettled. More important seems the fact that Tiebout choice is only a weak
indicator for the effect of free school choice. Parents have to move to another
district in order to vote with their feet. Although there is evidence that parents
actually do this (Barrow 2002), fully free choice results in much more competitive
pressure as parents can choose other schools in and out of district without moving.

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609

Unfortunately, the only evidence available is for small-scale free choice or voucher
programs as only a few countries in the world provide fully free choice for parents.
Lavy (2010), for example, analyzes the effects of free school choice using an
experiment in one of the districts of Tel Aviv (Israel) that allowed parents to choose
between public schools both in and out of district. He finds significant positive
effects of free school choice on the quality of public schools.
Sandstrom and Bergstrom (2005) show that the increased parental choice in
Sweden since 1992 as a result of a voucher program supports the hypothesis that
school results in public schools improve due to competition with independent
schools. However, if competition is measured by the commonly used Herfindahl
Hirschman concentration index, the effects are sometimes negative and sometimes
insignificant. Also, the Swedish voucher program is small: only 7 % of students
were enrolled in an independent school in 2004.
Chakrabarti (2008) analyses the effects of a voucher program for private schools
in Milwaukee. He finds a larger effect in the second phase of this program,
suggesting that the larger availability of places resulted in more positive effects of
competition on quality of public schools. He concludes that program characteristics
might be important to explain effects of competition on quality. In addition,
Hanushek et al. (2007) investigates the quality differences between charter and
public schools using data for Texas. They find that quality differences are absent
after the start-up phase, which is troublesome for most charter schools. Empirical
studies for other US states have tended to find effects ranging from slightly positive
to modestly negative on charter school students reading and math growth (see
Bifulco and Ladd (2006) for North Carolina and Sass (2006) for Florida).
Nevertheless, studies such as Hoxby and Rockoff (2005) and Hoxby and Murarka
(2009) focusing on charters schools in relatively vibrant urban areas, and therefore
with abundant choice, have found more positive effects. However, an important
limitation of these studies is that they include only schools with oversubscribed
lotteries, which are probably the most desirable schools in these areas. Therefore, in
a US overview of the vouchers and chartered schools literature Loeb et al. (2011)
claim that the empirical evidence of the effectiveness of vouchers in improving
students achievement is decidedly mixed.
Also Rouse and Barrow (2009, p. 22), after summarizing the literature on
voucher programs, conclude that these small-scale experiments cannot be used to
test Friedmans hypothesis and thus that many questions remain about the potential
long-term impacts on academic outcomes and about both the public and private
sector responses to a large, permanent, and well-funded voucher program.1 The
Netherlands is one of the few countries in the world where such impacts can
currently be measured as it has long experience with free choice, the role of both
public and private schools is large and funding is the same for all types of schools.
The other example might be Chile where 1,000 schools entered the market as a
result of a voucher program open for all schools, more or less comparable to the
1

Rouse and Barrow (2009) conclude that Keeping these limitations in mind, the best research to date
finds relatively small achievement gains for students offered education vouchers, most of which are not
statistically different from zero.

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situation in the Netherlands. Hsieh and Urquiola (2006) found no effects of

competition on quality in this case.
In the Netherlands, the model of free parental choice between different types of
schools has been present since the historical national school dispute (schoolstrijd)
came to an end in 1917 (Kossmann 1978).2 Ever since, parental choice and equal
opportunities for public and private schools have even been guaranteed in the Dutch
constitution. Private primary and secondary schools are managed by independent
non-profit boards, and they abide by practically the same rules as public schools.
Many, but not all, private schools have a religious denomination. Private schools are
fully financed by the government at exactly the same level as public schools, both
based on the number of students. The Dutch system could, in fact, be characterized
by a full voucher program with 100 % funding. Parents are free to choose any
public or private school in the country. Schools are in principle obliged to accept all
students. The only exception the law permits is for religious schools to ask that
parents agree with their denomination. In practice, only a few, especially Protestant,
schools use this exception. Selection with respect to the a priori quality of students
is never allowed. This is an important difference from voucher programs in other
countries, where schools can often select the students they want. Free choice is used
very often: in 2006, 71 % of students are at private schools.
Since the introduction of free parental choice, a large number of private schools
entered the market. However, currently, new schools are created only very
occasionally. The reason for this is that parents can start up a new school site3 as
long as they prove that the denomination (or educational method, such as Dalton or
Montessori) they present is not yet represented in their surroundings and that there
are enough students who want to attend a school with such a denomination. Given
the long history, nearly all types of schools already exist.4 This means that
competition in the Netherlands occurs between existing school sites and not with
entrants. This is a very important institutional characteristic which allows us to use
the number of school sites as an instrument for competition in the market to test
for endogeneity problems. Thus, competition between school sites measured by
concentration indices based on market shares (in our case, the Herfindahl
Hirschman index) might be endogenous with respect to quality as lower quality
might lead to changes in market shares if higher-quality schools attract students.
The number of school sites, however, is not endogenous in the Netherlands, as low
quality in a market is not a possible reason for getting permission to start a new
school site. The number of school sites in the Netherlands is therefore exogenous
with respect to quality. This is a major difference from US markets, where entry is
very often the result of dissatisfaction with existing school quality (Hoxby 2000).
Given the long history of competition between schools in the Netherlands, one
would expect effects on quality, if present, to be visible. However, the effect of
2

Belgium has a similar system, which appeared in 1958, also after a prolonged battle between religious
and secular political parties (Kossmann 1978, p. 273).

In the Netherlands, a distinction is made between school boards (or competent authorities for public
schools), schools, school sites and education types.

The only exception at present is Muslim schools, a few of which have been created recently.

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611

competition on quality has never been systematically analyzed for the Netherlands.
In this paper, we fill that gap based on data for secondary schools for the period
20022006. We use datasets from the Dutch Ministry of Education and the national
monitoring agency for education (Onderwijsinspectie). We measure school
quality by three achievement variables: the average score in the nationwide final
exams, the percentage of students who obtain a diploma and the percentage of
students graduating on time. For all three measures, we find evidence of a negative
effect of competition on quality, which is quite small. This effect is robust for
alternative specifications and sensitivity analyses, including endogeneity-correcting
instrumental variable (IV) estimations. We show that the effect is dominated by
small and medium-sized schools and by schools that do not have a Protestant or
Catholic denomination.
The article is organized as follows. Section 2 discusses the methodology and the
available data. The estimation results are presented in Sect. 3 and the robustness of
the results is discussed in Sect. 4. Section 5 draws some conclusions.

2 Methodology and data

Our main methodology is an econometric test of the effect of competition intensity
on the educational outcomes of school sites. In the Netherlands, a distinction is
made between school boards (or competent authorities for public schools), schools,
school sites and education types. A school board can comprise several schools and a
school can have several sites, while each school can supply five education types in
one or more sites. Schools are not obliged to provide all education types and they
often choose to provide a subset of the five types.
Students finish primary education at an average age of 12 and enroll in one
of five levels of secondary education. In increasing order of education level, these
are pre-vocational secondary education at three levels (VMBOBA, VMBOKA and
VMBOGT), senior general secondary education (HAVO) and pre-university
education (VWO). VMBO, lasting 4 years, is intended as preparation for secondary
vocational education (MBO) or for HAVO. The BA level is the lowest level, aimed
at trade-oriented learning. The highest VMBO level, GT, is theory based and is
necessary for students who want to follow the last 2 years of HAVO after finishing
VMBO. The intermediate level, KA, combines elements from both BA and GT.
HAVO, which lasts 5 years, is intended as preparation for higher vocational
education (HBO) and is necessary for students who want to follow the last 2 years
of VWO after finishing HAVO. VWO, which lasts 6 years, is intended as
preparation for university. In most schools, the final choice between education types
is made after the first 2 or 3 years of secondary education, while a first broad
streaming (e.g. a combination of HAVO/VWO or VMBO) is based on a nationwide
test at the end of primary school and on advice from the primary school teachers.
Our main hypothesis is that school sites compete with each other for students
and that this competition affects educational quality. Managers have an incentive
to attract more students to increase the size of their institution, as their salaries
are often influenced by the size of the site and school. Currently, the maximum

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managers salary for the smallest schools is 118,000 dollars per year, while managers
of the largest schools can earn up to 223,000 dollars per year.5 Traditionally, board
members were unpaid. Increasingly, however, board members also get a salary, which
is often coupled to the size of schools (varying from 3,000 dollars yearly for the
smallest schools to 14,000 dollars for the largest). As schools are not allowed to ask for
a contribution from parents, and revenues from the government are fixed per student,
the way to increase revenues is to increase the number of students. The question is,
how does this affect the quality of education? As long as quality is a dominant
parameter in the choice set of students (and their parents), a positive effect could be
expected. Schools with higher achievements are then able to attract more students.
A negative effect, however, could occur if other parameters determine the choice set
and schools invest in these parameters instead of in quality (see introduction). Which
effect dominates is a matter for empirical analysis.
We estimate a panel model using both cross-section and time-related variation.
For each achievement indicator, we estimate the following equation:
Qi;t bCIi;t cSi;t kPi;t cs dt ei;t ;

where Qi,t measures achievement of school site i in year t, CIi,t measures competition intensity of school site i in year t, Si,t is a vector of school site characteristics,
Pi,t is a vector of socio-economic variables for the neighborhood in which the school
site is located, cs are time-invariant school (s) fixed effects, dt are time fixed effects
(with 2002 as a benchmark) and ei is an error term.
Based on administrative data from the national monitoring agency for education
(Onderwijsinspectie), we distinguish between three school performance measures
as the dependent variable: the average exam score based on a national exam in the final
year,6 the percentage of students graduating and the percentage of students graduating
on time. All variables are measured at the site level i for each year t and by education
type. Data are available for nearly all sites. The total panel has a maximum of 10,063
observations as we have data for 554 sites, for four (VMBO: 20032006) or five
(HAVO and VWO: 20022006) years and for five education types. In Table 1,
summary statistics are shown for the overall sample and for the five education types.
We take as a measure of competition intensity the so-called Herfindahl
Hirschman index (HHI). The HHI is calculated for each school site and each year
based on the share (si,t) of the school sites enrollment in total enrollment within a
pre-defined geographic area per site (each site has its own geographic area) by
education type7:
X  2
HHIi;t
si;t :
2
i

We used an exchange rate of 1.25 dollars is 1 euro.

This national exam is the same for all Dutch schools, but different for each of the five educational types.

For the market shares (si,t), we take into account students who are in the last two (VMBO and HAVO)
and last three (VWO) years. We disregard student numbers for earlier years because students are not yet
streamed finally and precisely to education types.

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Table 1 Descriptive statistics
for quality variables, years
20022006 or 20032006
(VMBO)

613

Central
exam score

Share graduated
on time

Share
graduated

Overall
Mean

6.42

0.76

0.94

Minimum

4.10

0.09

0.07

Maximum

7.90

1.00

1.00

Standard deviation

0.33

0.16

0.07

Observations

10,063

9,183

10,041

VWO
Mean

6.41

0.64

0.93

Observations

2,057

1,945

2,057

HAVO
Mean

6.24

0.60

0.90

Observations

1,973

1,893

1,973

VMBOGT
Mean

6.35

0.85

0.95

Observations

2,718

3,022

2,698

VMBOKA
Mean

6.45

0.86

0.96

Observations

1,671

1,177

1,670

VMBOBA
Mean

6.73

0.89

0.95

Observations

1,644

1,146

1,643

School sites within a distance of 10 km are taken into account.8 The HHI varies
between 0 and 1. A value of (nearly) 0 indicates that there are many relatively
equal-sized school sites in the relevant market. A value of 1 indicates that the school
is a monopolist. In the estimations, we use a negative HHI (-HHI) as this is easier
to interpret (an increase in competition corresponds to an increase in this measure).
In Tables 2, 3 and 4 descriptive statistics for the HHIs are given. On average, the
HHI has a value of 0.35, indicating that the average site competes with two other
sites. An HHI lower than 0.1 reflects a high level of competition and applies to 11 %
of all sites. An HHI between 0.1 and 0.2, indicating moderately concentrated
markets, is present in 26 % of all cases. An index between 0.2 and 0.5 applies to
38 % of the school sites and these markets are concentrated. For 26 % of the sites,
markets are highly concentrated, with an HHI of 0.5 or more. According to this
measure, nearly half of these sites are monopolists (HHI = 1). These figures mean
that competition varies a lot by region. Table 3 shows that the HHI changes also
significantly between 2002 and 2006 for many locations. Although 1,717 have
8

In the US literature, the HHI is mostly based on a municipality or a district. In the Netherlands,
competition takes place within a certain geographic area as the geographic centers of municipalities are
much closer to each other. The distances between school sites are calculated using a standard route
planner. According to Statistics Netherlands 90 % of students have a school within 5 km. In sensitivity
analysis we show that our results are comparable when we choose 7.5 or 5 km as radius.

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Table 2 Share of school sites by level of competition

HHI

Sites

\0.1

High level of competition

Low level of competition
Monopoly

Share of all sites

1,071

0.11

0.10.2

2,590

0.26

0.20.5

3,807

0.38

0.51.0

1,495

0.15

1.0

1,100

0.11

10,063

1.00

Total

Table 3 Number and share of school sites by change in level of competition

Change in HHI between 2002 and 2006
Less than

-0.500

But more than

-0.200

Share

-0.200

23

0.9

-0.100

56

2.2

-0.100

-0.050

157

6.1

-0.050

-0.025

216

8.4

0.000

1,171

45.8

0.025

546

21.4

0.025

0.050

218

8.5

0.050

0.100

110

4.3

0.100

0.200

38

1.5

0.200

0.500

-0.025
More than

Number of locations

0.000

But less than

22
2,557

0.9
100

stable conditions, with a HHI change less than 0.025, 406 have a change of more
than 0.05. Large changes, more than 0.10, are present for 139 locations. Merger
guidelines of the EU and the USA indicate that a delta of 0.025 in the HHI might be
an indication for market failure. This is the case for 840 school locations (33 %). As
we estimate many of our models with school fixed effects, the changes over time are
important for identifying the effect of competition on quality. These figures show
that there is considerable change over time in our dataset.
Table 4 shows that the HHI differs with respect to big cities and population
density. For other characteristics, differences are more modest.
The effect of competition on the quality of education is estimated using the
general HHI measured at the school site level by education type. As an alternative
measure for competition intensity, in our sensitivity analysis we use the number of
competitors in the market and the HHI measured at the school level.
The first site characteristic we correct for in the estimations is size.9 In our model,
we include the size of the board (the number of schools per board), the size of the
school of which the site is a part (the total number of students) and the size of the
9

The effects of size are not influenced by the correlation with competition. Estimations without
competition variables or size variables do not lead to other conclusions, while the correlations between
competition intensity and the size of schools, sites and boards are only 0.05, -0.06 and 0.00 respectively.

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Table 4 Descriptive statistics for competition variables

Average
HHI at school site level

Max.

Min.

SD

N
10,063

0.35

1.00

0.04

0.28

Largest 21 cities

0.15

0.83

0.04

0.09

3,291

Top 25 % population densitya

0.18

1.00

0.04

0.13

2,513

Bottom 25 % pop. densitya

0.56

1.00

0.04

0.31

2,502

1st quintile size schoolb

0.34

1.00

0.04

0.30

2,044

2nd quintile size schoolb

0.31

1.00

0.04

0.24

1,929

3rd quintile size schoolb

0.37

1.00

0.04

0.27

1,966

4th quintile size schoolb

0.41

1.00

0.05

0.28

1,996

5th quintile size schoolb

0.34

1.00

0.04

0.26

2,128

Public

0.36

1.00

0.04

0.28

2,878

Catholic

0.39

1.00

0.05

0.29

1,850

Protestant

0.35

1.00

0.05

0.27

1,662

Neutral

0.34

1.00

0.05

0.27

1,724

0.32

1.00

0.04

0.26

1,949

HHI at school level

Other

0.39

1.00

0.05

0.28

10,063

Number of competitors

5.46

5.55

10,063

35

For definitions of variables, see Appendix

a

Per site

With respect to number of students

site at the education type level (the number of students by education type).10 The
second site characteristic is related to the type of education provided. We include
dummies with value 1 if one of the five types is provided, with VWO as the
benchmark. See Table 5 for descriptive statistics.
No socio-economic data on characteristics of the student population are available at
the site level. Therefore we use data that are available for the zip code of the site.11 We
include the following socio-economic characteristics: the number of non-western
foreigners per 100 inhabitants (foreigners), the average income per inhabitant in
thousands of euros (income) and population density. The only demographic
information available at the site level for the whole period is gender (the share of
girls). The data for the socio-economic characteristics for each zip code are obtained
from Statistics Netherlands. See Table 5 for descriptive statistics. Note that we also
include school and year fixed effects to correct for unobserved heterogeneity. We use
fixed effects at the school level as the time dimension is limited.12
10
We tested for multicollinearity between these variables and did not find any indication of this. We
excluded the size of the site summed over education types as this variable has a very high correlation with
size by education type.
11
Zip codes in the Netherlands are alphanumeric, consisting of four digits (followed by two letters).
These four-digit zip codes are geographic areas of towns or municipalities and the Netherlands has more
than 4,000 such areas. The average size of these areas is 10.3 km2.
12
Fixed effects for sites would result in only 9 observations per group for identification of the
competition effect. With school fixed effects we have 18 observations per group, which indicates that
these effects are already very detailed (554 groups for 10,063 observations).

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Table 5 Descriptive statistics for other variables

Average

Max.

Min.

SD

Size site (students)

219

1,553

10

164

10,063

Size school (students)

2,242

10,492

27

1,414

10,063

Size board (schools)

13

74

19

10,063

Education level (share)

VWO

0.20

1.00

0.00

0.40

10,063

HAVO

0.20

1.00

0.00

0.40

10,063

VMBOGT

0.27

1.00

0.00

0.44

10,063

VMBOKA

0.17

1.00

0.00

0.37

10,063

VMBOBA

0.16

1.00

0.00

0.37

10,063

Girls (share)

0.49

1.00

0.00

0.09

10,063

Foreigners (share)

0.10

0.80

0.00

0.11

10,063

Income (000 euros)

13.0

29.0

8.0

2.4

10,063

Population density (inhabitants/km2)

4,027

26,046

46

3,033

10,063

Year 2002

0.09

1.00

0.00

0.28

10,063

Year 2003

0.21

1.00

0.00

0.41

10,063

Year 2004

0.23

1.00

0.00

0.42

10,063

Year 2005

0.24

1.00

0.00

0.42

10,063

Year 2006

0.23

1.00

0.00

0.42

10,063

For definitions of variables, see Appendix

3 Results
Table 6 presents the estimation results. For all three achievement indicators, a
significant negative relationship is found between quality and competition. These
results suggest that more competition decreases the quality of education. However,
the effects are not large. If competition increases from monopoly (HHI = 1) to full
competition (HHI = 0), the average central exam score decreases by 0.05. With the
same change, the percentage of students graduating decreases by 1.1 %-points and
the percentage of students graduating on time decreases by 1.7 %-points. A smaller
change in competition intensity is more probable, especially because in the
Netherlands competition takes place between existing school sites and not with
entrants. Assume, for example, that a dominant firm with 60 % market share loses
students to four other schools with 10 % market share each, with the ex-post result
that all schools have equal market shares (resulting in an HHI decrease from 0.40 to
0.20). In this case, the average central exam score decreases by 0.01, while the
percentages of graduated and on-time graduated students decrease by 0.2 %-point
and 0.3 %-point respectively. This means that, although we find a significant
relationship between competition and quality, the effects are fairly small.
Scale effects are found for the central exam score if site size or school size
increases. These effects are small. If the site size is increased by 1,000 students, the
central exam score rises by 0.11. This effect is -0.06 if the school size increases by

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617

Table 6 Estimation results basic model

Central exam score

Share graduated on time

Share graduated

Coef.

SE

Coef.

SE

Coef.

SE

-HHI

-0.050

(0.019)***

-0.017

(0.007)**

-0.011

(0.004)**

Size site (000s)

0.112

(0.027)***

0.010

(0.011)

-0.007

(0.006)
(0.004)***

Size school (000s)

-0.064

(0.018)***

-0.014

(0.007)**

-0.016

Size board (schools)

0.001

(0.001)

0.000

(0.000)

0.000

(0.000)

HAVO

-0.143

(0.008)***

-0.033

(0.003)***

-0.030

(0.002)***

VMBOGT

0.003

(0.009)

0.216

(0.003)***

0.015

(0.002)***

VMBOKA

0.114

(0.010)***

0.199

(0.004)***

0.026

(0.002)***

VMBOBA

0.395

(0.010)***

0.234

(0.004)***

0.024

(0.002)***

Girls

-0.002

(0.039)

0.027

(0.017)

0.037

(0.009)***

Foreigners

-0.238

(0.054)***

0.003

(0.021)

-0.007

(0.012)

Income (000s)

2.221

(2.315)

-1.829

(0.913)**

-0.565

(0.537)
(0.000)***

Population density (000s)

0.001

(0.002)

-0.001

(0.001)

-0.001

Year 2003

0.012

(0.010)

0.025

(0.003)***

0.004

(0.002)*

Year 2004

-0.013

(0.010)

0.046

(0.003)***

0.007

(0.002)***

Year 2005

-0.055

(0.011)***

0.065

(0.003)***

0.006

(0.002)**

Year 2006

-0.037

(0.011)***

0.075

(0.003)***

0.005

(0.002)*

Constant

6.469

(0.061)***

0.633

(0.024)***

0.952

(0.014)***

R2 (within)

0.30

0.63

0.11

Observations

10,063

9,192

10,057

Standard errors in parentheses. */**/*** Significance at 10/5/1 %. Models are estimated with school
fixed effects, which are available upon request. For definitions of variables, see Appendix

the same number. For the share undelayed and the share graduated, only the school
size has an influence, which is small and negative.
For time effects, the exam score declines over time but the percentage of
undelayed graduated students increases over time. Thus, there are fewer students
with delay, but the price appears to be a lower exam score.
Turning to the socio-economic characteristics, we find significant negative
effects on the central exam score if a school is located in a neighborhood with a high
percentage of non-western foreigners. The share of graduated students is lower
when the population density increases. It should be noted, however, that we include
detailed fixed effects (by school), which might interact with these variables. Indeed,
models without fixed effects show highly significant coefficients for foreigners,
income and population density for all three quality measures.13 We find no
indication that the gender effect is important for the central exam score or for the
share of undelayed students, but the share of graduated students is higher with a
larger share of girls.

13

Details are available on request.

123

618

Empirica (2013) 40:607634

4 The robustness analysis

It could be argued that the effect of competition is not homogeneous. First, a
difference could be present between urban and rural areas. As competition is
generally higher in urban areas, it is possible that our main results are in fact driven
by differences between urban and rural areas. To test this, we include an additional
effect for the 21 Largest cities and for the sites located in areas with a relatively low
(bottom 25 %) or high (top 25 %) population density. The HHI is indeed much
lower in the 21 big cities, with an average value of 0.15 (Table 4). This is
comparable to the level of 0.18 for the sites in the areas with the highest population
densities. Sites in the bottom 25 % of areas have an HHI of 0.56. Still, we do not
find support for the heterogeneity hypothesis (Table 7, models 1 and 2).14 None of
the coefficients is significant at the usual levels for a separate competition intensity
effect for big cities or for areas with a low or high population density.
A second type of possible heterogeneity is related to the size of schools. It could
be argued that smaller schools have a higher need to attract additional students and
thus compete more fiercely. One reason for this is that small schools profit more
from scale economies in costs and reputational effects if their size increases. A
second reason is that small schools can lose their permit if their size drops below a
certain level. Finally, the wage level of managers is often coupled to the size of
schools, providing incentives to scale up, especially for managers of smaller
schools. To test this, first we include an additional variable measuring the
multiplicative effect of HHI and school size and, second, we replace the HHI by
HHIs in size quintiles.15 We indeed find some evidence for a relation between the
effect of competition intensity and size (Table 7, models 3 and 4). The coefficient
for HHI, at -0.16, is now three times as high as in the basic model for the effect on
central exam score, but decreases if schools become larger. At the average size
(1,713 students), the effect is -0.096. The effect becomes zero for schools with
about 4,200 students. For the shares of students graduating and students graduating
on time, however, the multiplicative effect is insignificant. In the specification with
quintiles, it is clear that the effect is dominated by the first two quintiles, although
some smaller effects are found for the 4th or 5th quintile. This means that the
negative effect of competition on quality is dominated by small and medium-sized
schools.
A third type of possible heterogeneity is related to the denomination of schools.
Students are in principle free to choose any school in the Netherlands. Certain
private schools, however, have a special relationship with a subgroup of inhabitants.
Catholic schools, for instance, will be more attractive for students with a Catholic
background. This might influence the real competition intensity schools feel. To test
this, we include additional parameters for the HHI variable by type of private
school. We distinguish between Catholic (18 % of the total), Protestant (17 %),
14

Full estimation results for the models presented in Tables 7 and 8 are available on request.

15

Schools are divided into five equal-sized groups with respect to school size. These groups have cut-off
points at respectively 1,201, 1,713, 2,266 and 2,983 students. We also include dummies for size classes to
prevent possible non-linear scale effects being included in coefficients for multiplicative effects.

123

Effect by denomination

Trend effect

Effect per school type VWO

Effect by size class of school with respect to

number of students (1st quintile are smallest
schools, 5th quintile are largest schools)

Effect per school type HAVO

Multiplicative effect with size of school

Separate effect for bottom and top 25 % with

respect to population density

Basic model (Table 6)

Separate effect for 21 Largest cities

Model

No.

-HHI 9 Bottom 25 % pop. density

0.012

(0.066)

-0.024

-HHI 9 Other

-HHI

-HHI

-HHI 9 Trend

-0.091

-0.080

0.007

-0.074

0.041

-HHI 9 Neutral
-HHI

0.097

(0.024)***

(0.028)***

(0.007)

(0.030)**

(0.020)

(0.033)

(0.025)***

(0.035)***

0.080

-HHI 9 Catholic
-HHI 9 Protestant

(0.028)

(0.032)**

(0.037)

(0.047)***

(0.054)***

(0.012)***

(0.040)***

(0.047)

(0.019)

(0.022)**

(0.025)***

0.001

-HHI 9 Schools 5th quintile (students)

(0.019)***
(0.019)***

-0.087

-HHI 9 Schools 4th quintile (students)

-HHI

-0.021
-0.068

-HHI 9 Schools 3rd quintile (students)

-0.214
-0.166

-HHI 9 Schools 1st quintile (students)

0.038

-0.161

-0.032

-HHI 9 Schools 2nd quintile (students)

-HHI 9 Size school (000 students)

-HHI

-HHI 9 Top 25 % pop. density

-0.058

-0.105

-HHI

-HHI 9 Largest 21 cities

-0.050
-0.051

-0.017

-0.035

-0.016

0.007

-0.042

-0.007

0.006

0.013

0.020

-0.024

-0.026

-0.021

0.019

-0.009

-0.048

-0.004

-0.005

-0.008

0.002

-0.016

0.041

-0.017

(0.012)***

(0.012)

(0.002)***

(0.011)***

(0.007)

(0.012)

(0.009)

(0.013)

(0.009)**

(0.011)**

(0.012)

(0.014)

(0.017)

(0.020)***

(0.005)

(0.016)

(0.019)

(0.007)

(0.008)*

(0.027)

(0.007)**

(0.007)**

SE

Coef.

Coef.

SE

Share on-time
graduated

Central exam score

-HHI

-HHI

Competition variables

Table 7 Estimation results for competition variables under alternative specifications

-0.023

-0.010

0.000

-0.011

-0.005

0.005

0.005

0.008

-0.013

-0.010

-0.014

0.002

-0.024

-0.016

-0.001

-0.008

-0.005

0.006

-0.015

-0.025

-0.011

-0.011

Coef.

(0.007)***

(0.007)

(0.002)

(0.007)*

(0.005)

(0.007)

(0.006)

(0.008)

(0.006)**

(0.006)

(0.007)**

(0.009)

(0.011)**

(0.012)

(0.002)

(0.009)

(0.011)

(0.004)

(0.005)***

(0.015)*

(0.004)**

(0.004)**

SE

Share graduated

Empirica (2013) 40:607634

619

123

123
-HHI

-0.129

-0.096

-0.167
(0.033)***

(0.030)***

(0.025)***
-0.018

-0.048

-0.037
(0.010)*

(0.013)***

(0.008)***

SE

Coef.

Coef.

SE

Share on-time
graduated

Central exam score

-0.011

-0.018

-0.012

Coef.

(0.006)*

(0.006)***

(0.005)**

SE

Share graduated

Standard errors in parentheses. */**/*** Significance at 10/5/1 %. Models (except for models 711) are estimated with school fixed effects, which are available upon
request. Results for other variables are also available on request. For definitions of variables, see Appendix

Effect per school type VMBOBA

11

-HHI

-HHI

Effect per school type VMBOGT

Effect per school type VMBOKA

Competition variables

Model

10

No.

Table 7 continued

620
Empirica (2013) 40:607634

Empirica (2013) 40:607634

621

neutral (17 %) and other (19 %) private schools. This last group is the combination
of several small denominations such as Orthodox Protestant, Anthroposophist and
Islamic. We find evidence of a denominational effect for the central exam score
(Table 7, model 5). Effects are roughly zero for Protestant and Catholic schools,
while the effects for other private and public schools are now higher (-0.09) than in
the basic model.
A fourth type of possible heterogeneity is related to time. Newspapers and
popular journals publish increasingly reliable information on the quality of schools,
and the quality variables for all schools have been available on the internet since
2004. It might take time before a significant number of students and their parents
make use of this information, and students and their parents might need time to get
used to using this information properly. It could therefore be argued that the
competition effect on quality changes over time as information on quality becomes
better available for students and their parents. We test this by including an
additional variable multiplying the HHI by a time trend. Only the estimation using
the share of on-time graduated students results in a significant coefficient (Table 7,
model 6). Here we find evidence that the effect was larger at the beginning of our
time frame. After 6 years, which lies outside our sample, the effect becomes zero.
A final type of heterogeneity is related to school type. It could be possible that
quality plays a different role per school type. Model 7 to 11 tests whether this is the
case. In general significant and negative effects are found. Only for VWO and
VMBOBA for two quality variables no significant effects are found.
It could be possible, of course, that combinations of heterogeneity are important.
Table 8, therefore, presents results for combinations of school size, population
density, school type and denomination.16 It shows that the results are rather robust.
If school size and population density are combined (model 12), the main results
for models 2 and 4 are replicated (although results are no longer significant for the
4th and 5th quintile). For the central exam score we find only an effect for schools in
the 2nd quintile in low population density areas. Although this effect is positive, it is
only significant at 90 % and the net effect is still negative as the single effect of the
2nd quintile is larger. For the share on-time graduated we find many significant
effects. They are all negative.
If school size, population density and school type are combined (models 13),
several significant effects are found. Although some of these effects are positive, the
net effects are always not significant or negative as the coefficients for the single
effects are compensating the positive effects. This shows that for some combinations the effect of competition on quality is much smaller or even insignificant.
Model 14 combines the effect of denomination and population density. Positive
effects are found for private schools compared with public schools, but only in high
population density areas. However, again the net effect is negative or insignificant
as the single effects are dominating or compensating.
To analyze the robustness of the estimations further, we test for endogeneity. One
could argue that there is also an effect of quality on competition. This would be so if
low-quality performance of schools invokes an increase in competition because it
16

We thank an anonymous referee for this suggestion.

123

123
-0.073
-0.135
-0.042
0.045

-HHI 9 Schools 4th quintile 9 Top 25 % pop. density

-HHI 9 Schools 5th quintile 9 Top 25 % pop. density

0.016

-HHI 9 Schools 5th quintile 9 Bottom 25 % pop. density

-HHI 9 Schools 2nd quintile 9 Top 25 % pop. density

0.054

-HHI 9 Schools 3rd quintile 9 Top 25 % pop. density

(0.072)

-0.017

-HHI 9 Schools 3rd quintile 9 Bottom 25 % pop. density

-HHI 9 Schools 4th quintile 9 Bottom 25 % pop. density

(0.123)

(0.134)

(0.144)

(0.122)

(0.068)

(0.068)

(0.073)*

(0.108)**

(0.065)

(0.036)

(0.041)

(0.049)

(0.063)***

(0.072)*

(0.019)***

0.121

-HHI 9 Schools 2nd quintile 9 Bottom 25 % pop.

density

-0.085

0.038
-0.237

-0.061

-HHI 9 Schools 4th quintile

-HHI 9 Schools 5th quintile

-HHI 9 Bottom 25 % pop. density

0.038

-HHI 9 Schools 3rd quintile

-HHI 9 Top 25 % pop. density

-0.196

-HHI 9 Schools 2nd quintile

-0.050
-0.135

-HHI

Basic model (Table 6)

Multiplicative effect by size

class of school with respect
to number of students
(1st quintile are smallest
schools, 5th quintile are
largest schools) in
combination with separate
effect for bottom and top
25 % with respect to
population density

12

-0.060

-0.130

-0.139

-0.161

-0.043

-0.066

-0.062

-0.045

0.054

0.035

-0.023

-0.002

0.036

-0.004

-0.079

-0.017

(0.050)

(0.055)**

(0.057)**

(0.050)***

(0.026)*

(0.026)**

(0.027)**

(0.028)

(0.046)

(0.024)

(0.014)*

(0.015)

(0.018)*

(0.024)

(0.027)***

(0.007)**

SE

Coef.

Coef.

SE

Share on-time
graduated

Central exam score

-HHI 9 Schools 1st quintile

Competition variables

Model

No.

Table 8 Estimation results for competition variables under alternative specifications: combined effects

-0.020

-0.032

-0.049

-0.024

0.003

0.002

0.000

0.022

-0.010

-0.008

-0.008

-0.013

0.005

-0.036

-0.008

-0.011

Coef.

(0.029)

(0.031)

(0.033)

(0.028)

(0.016)

(0.016)

(0.017)

(0.017)

(0.025)

(0.015)

(0.008)

(0.009)

(0.011)

(0.015)**

(0.017)

(0.004)**

SE

Share graduated

622
Empirica (2013) 40:607634

Model

Effect per school type: VWO:

Multiplicative effect by size
class of school with respect
to number of students
(1st quintile are smallest
schools, 5th quintile are
largest schools) in
combination with separate
effect for bottom and top
25 % with respect to
population density

No.

13a

Table 8 continued

(0.086)

0.351
0.056
0.094

-HHI 9 Schools 5th quintile 9 Top 25 % pop. density

0.112

-HHI 9 Schools 2nd quintile 9 Top 25 % pop. density

-HHI 9 Schools 3rd quintile 9 Top 25 % pop. density

0.074

-HHI 9 Schools 5th quintile 9 Bottom 25 % pop. density

-HHI 9 Schools 4th quintile 9 Top 25 % pop. density

0.060
0.044

-HHI 9 Schools 3rd quintile 9 Bottom 25 % pop. density

-HHI 9 Schools 4th quintile 9 Bottom 25 % pop. density

(0.145)*

-0.246
-0.018

-HHI 9 Top 25 % pop. density

-HHI 9 Schools 2nd quintile 9 Bottom 25 % pop.

density

(0.167)

(0.213)

(0.185)*

(0.167)

(0.122)

(0.096)

(0.098)

(0.102)

(0.090)

(0.063)

(0.056)***

(0.062)

(0.080)*

-0.042

-HHI 9 Bottom 25 % pop. density

0.017

-0.079
-0.165

-HHI 9 Schools 3rd quintile

-HHI 9 Schools 4th quintile

-HHI 9 Schools 5th quintile

-0.085
-0.152

-HHI 9 Schools 1st quintile

-0.129

-0.080

-0.133

0.021

-0.119

0.046

-0.056

-0.043

-0.037

0.033

0.065

-0.040

-0.015

-0.024

-0.003

(0.072)

(0.091)

(0.079)

(0.071)*

(0.051)

(0.041)

(0.041)

(0.043)

(0.062)

(0.038)*

(0.027)

(0.024)

(0.026)

(0.034)

(0.036)***

SE

Coef.

Coef.

SE

Share on-time
graduated

Central exam score

-HHI 9 Schools 2nd quintile

Competition variables

0.033

0.000

0.067

0.052

-0.012

-0.014

-0.012

0.006

-0.065

0.009

-0.019

-0.018

-0.003

-0.025

-0.039

Coef.

(0.042)

(0.053)

(0.047)

(0.042)

(0.031)

(0.024)

(0.025)

(0.026)

(0.036)*

(0.022)

(0.016)

(0.014)

(0.016)

(0.020)

(0.022)*

SE

Share graduated

Empirica (2013) 40:607634

623

123

Model

Effect per school type:

HAVO: Multiplicative
effect by size class of
school with respect to
number of students
(1st quintile are smallest
schools, 5th quintile are
largest schools) in
combination with separate
effect for bottom and top
25 % with respect to
population density

No.

13b

Table 8 continued

123
0.171
0.269
0.061

-HHI 9 Schools 5th quintile 9 Top 25 % pop. density

0.251

-HHI 9 Schools 2nd quintile 9 Top 25 % pop. density

-HHI 9 Schools 3rd quintile 9 Top 25 % pop. density

0.156

-HHI 9 Schools 5th quintile 9 Bottom 25 % pop. density

-HHI 9 Schools 4th quintile 9 Top 25 % pop. density

0.085
-0.026

(0.129)***

-0.440
-0.061

-HHI 9 Top 25 % pop. density

-HHI 9 Schools 2nd quintile 9 Bottom 25 % pop.

density

-HHI 9 Schools 3rd quintile 9 Bottom 25 % pop. density

(0.055)
(0.073)

-0.037
-0.017

-HHI 9 Schools 5th quintile

-HHI 9 Bottom 25 % pop. density

-HHI 9 Schools 4th quintile 9 Bottom 25 % pop. density

(0.049)***

-0.128
-0.164

-HHI 9 Schools 3rd quintile

-HHI 9 Schools 4th quintile

(0.069)

(0.148)

(0.182)

(0.167)

(0.153)

(0.096)

(0.080)

(0.081)

(0.086)

(0.053)**

(0.070)

-0.078
-0.044

-HHI 9 Schools 1st quintile

-0.133

-0.071

-0.272

-0.153

-0.244

0.009

-0.036

-0.066

-0.044

0.106

0.054

-0.011

-0.058

-0.059

-0.025

(0.076)

(0.092)***

(0.084)*

(0.077)***

(0.048)

(0.040)

(0.040)*

(0.043)

(0.066)

(0.036)

(0.028)

(0.024)**

(0.026)**

(0.035)

(0.034)***

SE

Coef.

Coef.

SE

Share on-time
graduated

Central exam score

-HHI 9 Schools 2nd quintile

Competition variables

-0.073

-0.032

-0.057

-0.053

0.028

0.003

0.002

0.001

-0.026

-0.002

-0.009

-0.028

-0.031

-0.028

-0.033

Coef.

(0.044)*

(0.053)

(0.049)

(0.045)

(0.028)

(0.024)

(0.024)

(0.025)

(0.038)

(0.021)

(0.016)

(0.014)*

(0.016)**

(0.021)

(0.020)

SE

Share graduated

624
Empirica (2013) 40:607634

Model

Effect per school type:

VMBOGT: Multiplicative
effect by size class of
school with respect
to number of students
(1st quintile are smallest
schools, 5th quintile are
largest schools) in
combination with separate
effect for bottom and top
25 % with respect to
population density

No.

13c

Table 8 continued

(0.177)

-0.866
-0.454
-0.515

-HHI 9 Schools 3rd quintile 9 Top 25 % pop. density

-HHI 9 Schools 4th quintile 9 Top 25 % pop. density

-HHI 9 Schools 5th quintile 9 Top 25 % pop. density

0.115
-0.644

-HHI 9 Schools 5th quintile 9 Bottom 25 % pop. density

-HHI 9 Schools 2nd quintile 9 Top 25 % pop. density

0.107
0.120

-HHI 9 Schools 3rd quintile 9 Bottom 25 % pop. density

-HHI 9 Schools 4th quintile 9 Bottom 25 % pop. density

0.098
0.155

-HHI 9 Top 25 % pop. density

(0.071)*
(0.078)

-0.120
-0.066

-HHI 9 Schools 5th quintile

-HHI 9 Bottom 25 % pop. density

-HHI 9 Schools 2nd quintile 9 Bottom 25 % pop.

density

(0.059)***

-0.252
-0.206

-HHI 9 Schools 3rd quintile

-HHI 9 Schools 4th quintile

(0.079)**

(0.197)***

(0.222)**

(0.223)***

(0.227)***

(0.092)

(0.086)

(0.092)

(0.108)

(0.067)***

(0.096)**

-0.192
-0.225

-HHI 9 Schools 1st quintile

-0.002

-0.056

-0.120

-0.110

-0.096

0.042

0.061

0.072

0.035

-0.039

-0.045

-0.014

-0.049

-0.085

-0.036

(0.060)

(0.070)*

(0.069)

(0.068)

(0.028)

(0.026)**

(0.028)**

(0.033)

(0.054)

(0.023)*

(0.022)

(0.018)***

(0.021)***

(0.030)

(0.023)

SE

Coef.

Coef.

SE

Share on-time
graduated

Central exam score

-HHI 9 Schools 2nd quintile

Competition variables

-0.053

-0.018

-0.065

0.022

0.000

0.002

0.008

-0.003

-0.053

0.015

-0.010

-0.029

-0.050

-0.017

-0.020

Coef.

(0.042)

(0.047)

(0.048)

(0.049)

(0.020)

(0.018)

(0.020)

(0.023)

(0.038)

(0.017)

(0.015)

(0.013)**

(0.014)***

(0.021)

(0.017)

SE

Share graduated

Empirica (2013) 40:607634

625

123

Model

Effect per school type:

VMBOKA: Multiplicative
effect by size class of
school with respect to
number of students
(1st quintile are smallest
schools, 5th quintile are
largest schools) in
combination with separate
effect for bottom and top
25 % with respect to
population density

No.

13d

Table 8 continued

123
(0.073)
(0.082)**
(0.120)**

-0.007
-0.193
-0.288

-HHI 9 Schools 5th quintile

-HHI 9 Bottom 25 % pop. density

-0.495
-0.414
-0.280

-HHI 9 Schools 3rd quintile 9 Top 25 % pop. density

-HHI 9 Schools 4th quintile 9 Top 25 % pop. density

-HHI 9 Schools 5th quintile 9 Top 25 % pop. density

0.207
-0.082

-HHI 9 Schools 5th quintile 9 Bottom 25 % pop. density

-HHI 9 Schools 2nd quintile 9 Top 25 % pop. density

0.082
0.255

-HHI 9 Schools 3rd quintile 9 Bottom 25 % pop. density

-HHI 9 Schools 4th quintile 9 Bottom 25 % pop. density

0.269

-HHI 9 Schools 2nd quintile 9 Bottom 25 % pop.

density

-HHI 9 Top 25 % pop. density

(0.073)***

-0.046
-0.234

-HHI 9 Schools 3rd quintile

-HHI 9 Schools 4th quintile

(0.083)

(0.174)

(0.200)**

(0.225)**

(0.206)

(0.092)**

(0.089)***

(0.094)

(0.107)**

(0.080)

(0.101)**

0.030
-0.253

-HHI 9 Schools 1st quintile

0.012

0.007

-0.158

-0.194

-0.120

0.083

0.018

0.021

0.007

-0.042

-0.068

-0.032

-0.052

-0.037

-0.026

(0.073)

(0.090)*

(0.098)**

(0.112)

(0.039)**

(0.037)

(0.039)

(0.046)

(0.056)

(0.035)*

(0.030)

(0.030)*

(0.033)

(0.043)

(0.035)

SE

Coef.

Coef.

SE

Share on-time
graduated

Central exam score

-HHI 9 Schools 2nd quintile

Competition variables

-0.022

-0.081

-0.057

-0.065

0.024

0.022

0.007

0.034

-0.025

-0.031

-0.008

-0.027

-0.006

-0.015

-0.008

Coef.

(0.033)

(0.038)**

(0.043)

(0.039)

(0.018)

(0.017)

(0.018)

(0.020)*

(0.023)

(0.016)**

(0.014)

(0.014)*

(0.015)

(0.019)

(0.016)

SE

Share graduated

626
Empirica (2013) 40:607634

Model

Effect per school type:

VMBOBA: Multiplicative
effect by size class of
school with respect to
number of students
(1st quintile are smallest
schools, 5th quintile are
largest schools) in
combination with separate
effect for bottom and top
25 % with respect to
population density

Multiplicative effect by
denomination with separate
effect for bottom and top
25 % with respect to
population density

No.

13e

14

Table 8 continued

(0.078)
(0.088)**
(0.135)***

-0.023
-0.214
-0.513

-HHI 9 Schools 5th quintile

-HHI 9 Bottom 25 % pop. density

0.071
0.084
0.093
-0.075

-HHI 9 Catholic

-HHI 9 Protestant

-HHI 9 Neutral

-HHI 9 Other

-0.032
-0.372

-HHI 9 Bottom 25 % pop. density

0.136

-HHI 9 Schools 5th quintile 9 Top 25 % pop. density

-HHI 9 Top 25 % pop. density

0.095
-0.060

-0.107

-HHI 9 Schools 3rd quintile 9 Top 25 % pop. density

-HHI 9 Schools 4th quintile 9 Top 25 % pop. density

-HHI

0.084
-0.565

-HHI 9 Schools 5th quintile 9 Bottom 25 % pop. density

-HHI 9 Schools 2nd quintile 9 Top 25 % pop. density

0.086
0.108

-HHI 9 Schools 3rd quintile 9 Bottom 25 % pop. density

-HHI 9 Schools 4th quintile 9 Bottom 25 % pop. density

0.231

-HHI 9 Schools 2nd quintile 9 Bottom 25 % pop.

density

-HHI 9 Top 25 % pop. density

(0.080)*

-0.124
-0.155

-HHI 9 Schools 3rd quintile

-HHI 9 Schools 4th quintile

(0.085)

(0.043)*

(0.055)*

(0.052)

(0.053)

(0.095)***

(0.040)

(0.040)

(0.193)

(0.209)

(0.212)

(0.222)**

(0.099)

(0.095)

(0.100)

(0.117)**

(0.088)

(0.114)*

0.129
-0.196

-HHI 9 Schools 1st quintile

0.007

0.006

0.009

-0.012

-0.004

-0.044

-0.015

-0.013

0.006

-0.120

-0.155

-0.355

0.032

-0.017

-0.020

-0.017

-0.004

-0.002

-0.028

-0.036

0.008

0.026

(0.016)

(0.021)

(0.019)

(0.020)

(0.039)

(0.015)

(0.015)

(0.056)

(0.067)*

(0.062)**

(0.083)***

(0.031)

(0.029)

(0.032)

(0.036)

(0.041)

(0.028)

(0.024)

(0.024)

(0.028)

(0.036)

(0.026)

SE

Coef.

Coef.

SE

Share on-time
graduated

Central exam score

-HHI 9 Schools 2nd quintile

Competition variables

-0.001

0.014

0.003

0.001

-0.043

-0.003

-0.014

0.013

-0.024

-0.036

-0.090

0.023

0.011

0.003

0.027

-0.020

-0.019

-0.023

-0.025

0.006

-0.008

0.017

Coef.

(0.010)

(0.013)

(0.012)

(0.012)

(0.022)**

(0.009)

(0.009)

(0.035)

(0.037)

(0.038)

(0.040)**

(0.018)

(0.017)

(0.018)

(0.021)

(0.024)

(0.016)

(0.014)*

(0.014)*

(0.016)

(0.020)

(0.015)

SE

Share graduated

Empirica (2013) 40:607634

627

123

123

Model

0.247
-0.089

-HHI 9 Top 25 % pop. density 9 Neutral

-HHI 9 Top 25 % pop. density 9 Other

(0.135)**

0.274
0.221

-HHI 9 Top 25 % pop. density 9 Catholic

0.040

-HHI 9 Top 25 % pop. density 9 Protestant

(0.041)

-0.027

-HHI 9 Bottom 25 % pop. density 9 Neutral

-HHI 9 Bottom 25 % pop. density 9 Other

(0.077)

(0.107)**

(0.104)**

(0.046)

0.047

0.054

0.010

0.030

-0.001

0.015

0.022

-0.005

(0.046)**
(0.046)

-0.117
-0.020

-HHI 9 Bottom 25 % pop. density 9 Catholic

Coef.

SE

Coef.

(0.028)*

(0.044)

(0.039)

(0.052)

(0.015)

(0.017)

(0.017)

(0.017)

SE

Share on-time
graduated

Central exam score

-HHI 9 Bottom 25 % pop. density 9 Protestant

Competition variables

-0.008

0.025

0.031

0.056

0.008

-0.003

0.006

-0.011

Coef.

(0.018)

(0.025)

(0.024)

(0.031)*

(0.010)

(0.011)

(0.011)

(0.011)

SE

Share graduated

Standard errors in parentheses. */**/*** Significance at 10/5/1 %. Models (except for models 711) are estimated with school fixed effects, which are available upon
request. Results for other variables are also available on request. For definitions of variables, see Appendix

No.

Table 8 continued

628
Empirica (2013) 40:607634

Empirica (2013) 40:607634

629

provides opportunities for other schools to compete on quality. If this is the case, our
estimations might be biased. An alternative for the basic model is IV estimation
where the HHI is replaced by an instrument [as applied, for instance, by Sandstrom
and Bergstrom (2005) and Hoxby (2000, 2007)]. We use the number of competitors
in the market as an instrument.17 While market shares, and thus the HHI, might be
endogenous to quality, in the Netherlands the number of competitors cannot be
endogenous to quality. As the introduction shows, creation of school sites is (nearly)
non-existent. More importantly, low quality in a certain market can never be a
reason to start a new school site. If this were the reason given by certain parties for
starting a new school site, permission would not be granted. Only when
denominations (or specific educational methods) are not present in the relevant
market is such permission granted. The number of school sites is, therefore,
exogenous by law. This is a major difference from US markets, where entry is very
often the result of dissatisfaction with existing school quality (Hoxby 2000). Table 9
presents the results for the IV estimator based on two-stage least squares (2SLS)
estimation (model 15). We find that the reported negative effect of competition on
quality is robust to endogeneity as none of the coefficients for the competition
variables is significantly different from the basic estimates. Next, we test for
endogeneity by using lagged values of HHI (model 16, 17 and 18). If there is an
effect of quality on competition levels, this should not be the case with lagged
values. In most cases we find again significant and negative results. If we find no
significant negative effects, they are never positive.
Next, we test alternative assumptions for the competition variable. First,
competition is measured by the number of school sites in the market. Second,
competition is measured at the level of the school instead of the school site to reflect
the case of competition taking place at school level instead of site level. Third, we
decrease the radius for schools when calculating HHI to 7.5 and 5 km. In nearly all
cases, we again find a negative effect of competition on quality (Table 9, models 19,
20, 21 and 22). Fourth, we investigate whether there is a non-linear effect between
competition and quality by including a quadratic term for the HHI variable, as in
Aghion et al. (2005). Although the coefficients for quadratic effects are significant
for the central exam score and the share of on-time graduated students, the negative
effect is still present in nearly all cases (Table 9, model 23). Only when the HHI
decreases over the range from 1.0 (monopoly) to 0.8 is a very small increase in
quality (0.01) observed. Estimations with a separate effect for this HHI range,
however, show that this is the result of overshooting given the quadratic
specification (Table 9, model 24). Although all three coefficients for the separate
effects are positive, they are never significant. This holds also when we have a
separate dummy for monopolies (Table 9, model 25).

17

To be precise, we use (1/(number of competitors ? 1)) as an instrument to obtain a measure between 0

and 1 that is comparable to the HHI variable, which makes comparison of coefficients with our basic
estimates easier. Alternative specifications with, for example, (1/(number of competitors)) or (1/(number
of competitors ? 3)) all result in negative and significant coefficients.

123

123

First differences

First differences

29

30

-HHI 1 period lagged

-0.046

0.186

First differences -HHI

-HHI

-HHI

-HHI instrumented by number of competitors

-HHI

Monopoly (dummy)

-HHI

HHI between 0.8 and 1.0

0.003

0.010

-0.059

-0.108

-0.107

0.030

-0.086

0.030

-0.086

HHI2

-HHI

-0.275

0.029

0.006

-0.068

-0.012

-0.058

-0.048

-HHI

-HHI with radius 5 km

-HHI with radius 7.5 km

-HHI at school level

Number of competitors

-HHI 3 periods lagged

-HHI 2 periods lagged

-0.050
-0.050

(0.019)***

(0.088)

(0.012)

(0.031)*

(0.013)***

(0.013)***

(0.021)

(0.031)***

(0.021)

(0.031)***

(0.056)***

(0.071)***

(0.023)

(0.025)

(0.019)***

(0.001)***

(0.026)**

(0.021)**

(0.019)**

(0.020)**

-0.017

0.045

0.002

0.013

-0.032

-0.032

0.007

-0.026

0.007

-0.026

0.052

-0.081

-0.029

-0.036

-0.019

-0.003

-0.015

-0.012

-0.014

-0.021

(0.042)

(0.006)

(0.012)

(0.005)***

(0.005)***

(0.008)

(0.012)**

(0.008)

(0.012)**

(0.022)**

(0.027)***

(0.010)***

(0.011)***

(0.007)**

(0.001)***

(0.009)

(0.008)

(0.007)*

(0.007)***

(0.007)**

SE

Coef.

Coef.

SE

Share on-time graduated

Central exam score

-0.002

-0.002

-0.003

-0.013

-0.013

0.002

-0.013

0.002

-0.013

0.019

-0.034

-0.010

-0.014

-0.013

-0.002

-0.008

-0.011

-0.011

-0.010

-0.011

Coef.

(0.025)

(0.003)

(0.008)

(0.003)***

(0.003)***

(0.005)

(0.007)*

(0.005)

(0.007)*

(0.013)

(0.016)**

(0.006)*

(0.006)**

(0.004)***

(0.000)***

(0.006)

(0.005)**

(0.004)***

(0.005)**

(0.004)**

SE

Share graduated

Standard errors in parentheses. */**/*** Significance at 10/5/1 %. Apart from model 23, 24, 26 and 27 (no fixed effects) and model 25 (site fixed effects), models are
estimated with school fixed effects, which are available upon request. Results for other variables are also available on request

No school fixed effects, IV

No school fixed effects

26

School site fixed effects

Separate effect for monopolies

25

27

Separate effect for high HHI

24

28

Alternative competition variable

Quadratic effect of competition

22

23

Alternative competition variable

Alternative competition variable

20

21

Lagged HHI 3

Alternative competition variable

18

19

Lagged HHI 1

Lagged HHI 2

16

17

-HHI instrumented by number of competitors

-HHI

Basic model (Table 6)

IV

Competition variables

Model

15

No.

Table 9 Estimation results for competition variables in sensitivity analysis

630
Empirica (2013) 40:607634

Empirica (2013) 40:607634

631

One can argue that fixed effects models are not optimal in our case as they make
it impossible to fully use the heterogeneity between schools. We estimate models
without fixed effects for schools and find that coefficients are significant and
negative, but much higher for the central exam score and the share on-time
graduated (Table 9, model 26). This means that panel estimations are important as
fixed effects can correct for unobserved heterogeneity. But, more important, with or
without fixed effects, we find significant and negative results. This is also the case
when the model without fixed effects is combined with the before mentioned IVestimator (model 27).
Next, we test for the opposite case, if school fixed effects are not detailed enough.
Although we think that this is not the case, as we have already 554 fixed effects, we
estimate the model with school site fixed effects (Table 9, model 28) and again find
no positive effects. Still, the effects are even more modest now and we find now
only for the central exam score a negative and significant effect. Note, however, that
we now have very few observations per unit (9) as the time frame is rather small and
we probably ask too much from our data as the only identification comes now from
the time-dimension. Finally, we test the effect of competition using first differences
for the endogenous variables without and with first differences for the HHI variable
(Table 9, model 29 and 30). We find only insignificant results.
Summarizing, the negative relationship we regularly find between competition
and quality for Dutch secondary schools is fairly robust, but the effect is larger for
small and medium-sized schools and for schools that are not Catholic or Protestant.
In some cases we find insignificant effects, but found effects are never positive.

5 Conclusions
An interesting debate on the effect of competition between schools is taking place in
the literature. Based on Friedmans hypothesis it is claimed that competition
enhances quality. However, if quality plays a minor role in the choices made by
students and their parents, the opposite effect could be possible. The empirical tests
of the hypothesis that competition improves quality are based on countries where
only a low level of competition is present. Tiebout choice, small-scale voucher
programs and experiments do not necessarily shed light on the long-term effects of
fully free parental choice. In the Netherlands, free parental choice has been the
leading principle since the beginning of the last century and could be characterized
as a full voucher program with 100 % funding. Nevertheless, empirical analysis of
the effect of this free parental choice on educational achievements has not taken
place; this paper fills that gap for secondary education based on 20022006 school
site data, We find regularly a negative relation between competition and the quality
of educational outcomes, but that the effect is small. This effect is robust for
alternative specifications and sensitivity analyses, including endogeneity-correcting
IV estimations. We have shown that the effect is dominated by small and mediumsized schools and by schools that do not have a Protestant or Catholic denomination.
In some cases we find insignificant results. But we have never found a positive and
significant effect.

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Empirica (2013) 40:607634

These findings especially contradict Hoxby (2007), Chakrabarti (2008) and Lavy
(2010). Given the fact that only our analysis is based on fully free choice, which has
been available on a large scale and for a long time, it could be argued that our results
give a better approximation of the long-term effects. However, the results are
consistent if quality of educational outcomes plays a much larger role in school
choice in Israel and the US than in the Netherlands. Interestingly, this result is in
line with Chakrabarti (2008), who found that effects depend on the characteristics of
the voucher program. This would suggest that there is no general answer on the
question what the effect of competition on educational quality is. Our results are in
main lines consistent with Hsieh and Urquiola (2006) as they found no significant
effects of competition on quality after a large scale voucher program in Chile and
with Hanushek et al. (2007) who found no differences in quality between public and
charter schools in Texas.
There are several avenues to explore in future research. First, broader measures
of quality should be used. It could be that competition has a positive effect on
quality aspects other than educational outcomes. Lavy (2010) provides first
evidence for such effects, finding that behavioral outcomes improved after the
introduction of free choice in Tel Aviv. Second, and related to the first point, it
could be the case that the quality measures we investigate are not decisive for
parents. It is possible that other aspects, like the curriculum, sport programs and
the school building are more important for parents to choose between schools. If
schools know this, investments in these aspects will diminish the available money
for the quality aspects measured in this paper. This could explain the found negative
effect. It would be worthwhile to test this in a new paper directly. Third, it could be
possible that some parents, particularly those who are worse-off, simply choose the
nearest school. Although this need not influence the results per definition, as the
marginal chooser might be more important, it is worthwhile to test whether
differences in choice behavior influences the results. Fourth, it would be interesting
to investigate the effects of competition on quality for primary schools as well,
where distance is a more important feature of school choice. Fifth, if data become
available for more years, it would be possible to investigate whether the found
relationship still holds over a longer time span. The effect of public discussion and
increasing transparency using the internet might diminish the negative effects after a
few years if the role of quality in choosing schools increases. Finally, it is
worthwhile to test whether effects are consistent between countries as education
sectors and people differ. It might be the case that competition plays different roles
in different countries.
Open Access This article is distributed under the terms of the Creative Commons Attribution License
which permits any use, distribution, and reproduction in any medium, provided the original author(s) and
the source are credited.

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633

Appendix: List of variables

Competition
(-HHI)

Minus HerfindahlHirschman index at site level (sum of market shares of school

sites within radius of 10 km)

Competition
(# competitors)

Number of competitors at site level within radius of 10 km

Competition
(-HHI school
level)

Minus HerfindahlHirschman index at school level (sum of market shares of schools

within radius of 10 km)

Monopoly

Dummy with value 1 if HHI = 1 (and zero otherwise)

Largest 21 cities

Dummy with value 1 if site is situated in one of the 21 largest cities (these cities
have more than 118,000 inhabitants) and 0 otherwise

Population
density

Number of inhabitants per km2

Bottom 25 %
pop. density

Dummy with value 1 if site is situated in a zip-code area with a low population
density (75 % of areas have higher density) and 0 otherwise

Top 25 % pop.
density

Dummy with value 1 if site is situated in a zip-code area with a high population
density (75 % of areas have lower density) and 0 otherwise

Size site

Number of students at the site

Size school

Number of students of the school that the site is part of

Size board

Number of schools on the board that the site is part of

HAVO

Dummy with value 1 if site provides education at HAVO level and 0 otherwise

VMBOGT

Dummy with value 1 if site provides education at VMBOGT level and 0 otherwise

VMBOKA

Dummy with value 1 if site provides education at VMBOKA level and 0 otherwise

VMBOBA

Dummy with value 1 if site provides education at VMBOBA level and 0 otherwise

Girls

Share of girls at site

Foreigners

Share of non-western foreigners at zip-code level

Income

Income per inhabitant in thousands of euros at zip-code level

Public

Dummy with value 1 if site is part of a public school and 0 otherwise

Catholic

Dummy with value 1 if site has a Catholic denomination and 0 otherwise

Protestant

Dummy with value 1 if site has a Protestant denomination and 0 otherwise

Neutral

Dummy with value 1 if site has a neutral denomination and 0 otherwise

Other

Dummy with value 1 if site has a denomination other than public, Catholic,
Protestant or neutral and 0 otherwise

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