People's satisfaction from some goods and services depends on
their relative as distinct from their absolute position as
consumers. Such items are called "positional goods", and a
restriction of their supply in the situation of general income
growth is conducive to expenditure escalation as in an arms race.
If education is a positional good in this sense, arrangements are
needed that will best prevent such an outcome. The introduction of
education vouchers of a value egual to the average per capita
public school expenditure, it is argued, will only hinder not help.
This is because some recipients will be tempted to obtain more
education with marginal additions to their vouchers from their own
pockets. Vouchers are thus welfare reducing because they encourage
rather than discourage "arms race" situations. Using a formal
median voter model we show that concerns over possible escalation
of expenditure will prompt a majority of voters to reject a
universal voucher system. We examine, as an alternative, a
selective voucher system that will remove the escalation problem.
Under this system only low-income families will receive vouchers.
We demonstrate that the median voter will favor such a selective
voucher system provided that the voucher-induced increase in
competition lowers costs and/or improves guality of education.