For-profit milk in nonprofit cartons? The case of nonprofit charter schools subcontracting with for-profit education management organizations

There is growing concern that some public service providers may be nonprofit in name but not in fact. We consider this issue in the context of nonprofit charter schools, which sometimes subcontract their daily operations to for-profit management organizations. We use unique data from Ohio to study how nonprofit charters’ reliance on for-profit operators affects student achievement and attendance. The results indicate that charter schools with for-profit operators are, on average, at least as effective as nearby traditional public schools with respect to both outcomes, and that the average low-achieving student experiences greater test-score gains in charters with for-profit operators than in traditional public schools. However, charter schools with for-profit operators tend to be less effective than other charters nearby, particularly for students with high test scores and low absence rates. Further analysis comparing the administration and outcomes of charter schools with different types of contracting arrangements suggests that the prioritization of profit may explain their different outcomes. This study offers insights for literatures on charter schools, contracting, and sector boundaries.