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the plight of the large airlines and automobile manufacturers. Their problems may be viewed as psychological impediments to information flow and deterrents to economic efficiency allowed by limited market competition (typically under government-protected monopolistic or oligopolistic conditions). In the terminology of organizational psychology, the “coordination costs” of communicating among departments and administrative levels divert money, time, and attention from the organizations’ ultimate purposes. “Agency problems” mean that nominal governance is remote from service delivery and customer satisfaction, allowing each level of administration to mistakenly report to or misunderstand information from levels above and below it. Sometimes such errors may be deliberate to enhance the power and compensation of members of parts of the organization. To control coordination and agency problems, big organizations must impose complex rules, but setting forth and following these rules divert further resources and discourage efficient innovations and sensitivity to customer preferences.30

When businesses grow so large that solving coordination and agency problems becomes too expensive, the “creative destruction” of competitive markets forces firms to return to their optimal size or go out of business. If their boards and senior staff don’t reform themselves, the firms are acquired by or merged with other firms, or they go bankrupt. Monopolistic government-run organizations that have grown too large, however, may continue to operate and grow indefinitely since they remain undisciplined by market competition. Traditional public schools and school districts are classic cases since their dissatisfied parents have had little recourse except moving or paying tuition to private schools.

Government budgets are usually arcane, and few citizens take the trouble to master them. School district control is often “captured” by special interest groups, particularly teachers’ unions.31 Their members are far fewer in number than voters, taxpayers, and their client students and their families, but their members are typically far better informed about their organizations and have agreed-upon, narrow self-interests. They are strategically organized and able to exert strong influence over often less well informed boards, administrators, legislators, governors, mayors, and other civic leaders. The rewards for each union member and public school administrator in salary and working conditions are large, but the costs may be imperceptible to taxpayers, except in the aggregate, since increases in school costs may be a minute fraction of total taxes.

With respect to K-12 education, larger units of government such as states and large city and metropolitan districts are likely to be led by people who are less well informed about the needs and preferences of smaller communities within their purview. It seems unlikely, for example, that Chicago school board members could even name the several hundred schools they are responsible for overseeing, let alone get to know and represent the preferences and concerns of individual parents. Special interests may find it easier and more efficient, moreover, to influence policy when decisionmakers are fewer in number and located in a single place. Concentrating on a state legislature, for example, would seem to be easier and more efficient than trying to influence thousands of local school board members nominally overseeing several hundred school districts in the typical state.32

About one-third of the K-12 students are enrolled in fewer than 2 percent of the school districts.33 With as many as 1.1 million students in 1,203 schools and average school sizes just short of 1,000 in New York City, the biggest city school systems are well-known for high costs and poor performance. They illustrate the problems of extreme centralization; complex departmentalization; intermediate governing units leading to inefficient, uncompetitive schools; and withdrawal of middle-class children from big city schools to private schools and