This paper represents the development of a theoretical framework that can be used to analyze, reform, and design institutional arrangements for the provision and production of educational services. We examine current dichotomous debate over policy and reform proposals for education (hierarchical organization of schools versus market competition between schools) and question whether the nature of the puzzles associated with the provision and production of education warrant such attempts to dichotomize and search for a single, "best" solution. We show the chain of choices potentially affecting educational performance and analyze the institutional incentives and problems of both providing and producing education. We evaluate the likelihood of alternative institutional regimes exacerbating or ameliorating these provision and production problems and argue that one might think of alternative institutional arrangements as being sets of experiments—each having diverse potential for success and failure in overcoming perverse institutional incentives associated with education, but no one institutional design representing the "one best solution."
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