Postprint version. Published in Applied Economics, Volume 33, Issue 10, August 1, 2001, pages 1341-1354.
This paper tests the hypothesis that monopoly power of school districts allows bureaucratic expansion and fosters poor academic performance in the public school system in California. Evidence indicates that monopoly power is positively associated with employment of administrators and teachers, and therefore supports the bureaucratic expansion hypothesis. While numbers of teachers do not influence performance measures, numbers of administrators are shown to positively affect performance - results that suggest that too many teachers, but too few administrators, are employed. While bureaucracy theory may explain the resource misallocation, other reasons might include rising public pressures on hiring teachers over administrators, spending equalization policies, and the weak California economy in the period under investigation.