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 nonprofit public service providers may be nonprofit in name but not in fact. We consider this concern 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 charter schools’ reliance on for-profit operators affects student achievement and attendance. The results indicate that nonprofit charters that subcontract with for-profit operators tend to be more effective and equitable in promoting student achievement (but not attendance, a less salient outcome) than nearby traditional public schools serving similar students. However, nonprofit charters that subcontract with for-profit operators tend to be less effective (with regard to both achievement and attendance) and less equitable (with regard to attendance) than other nonprofit charters nearby. Further analysis comparing the administration and outcomes of for-profit and nonprofit operators suggests that the profit motive may help explain the inferior performance of nonprofit charters with for-profit operators. Our study offers theoretical insights for literatures on charter schools, contracting, performance monitoring, and sector boundaries, and it has immediate implications for education policy and management.