1 Preliminary Draft (23.05.2016) Why Education Markets Fail: Unravelling the Political Economy of Vouchers in Chile 1 Javier Gonzalez D. Affiliated Lecturer, Centre of Development Studies, University of Cambridge. Director, Centre of Research and Innovation in Education for Latin America and the Caribbean (SUMMA). Abstract In the context of the increasing role of private education around the world, this article analyses the political economy of vouchers in Chile. This case study is important since it constitutes one of the oldest and most extensive voucher systems in the world and thus represents a valuable experience from which numerous general lessons may be drawn. For this purpose, this paper examines a key pillar of education markets, i.e. the role of competition between schools as a driver for education quality improvement. Using a large dataset of students and schools in Chile, it empirically estimates the effect of competition over academic outcomes, showing that this effect is negligible, partly confirming international evidence in this field. The paper then offers an explanation of these findings, analysing each one of the main underlying assumptions of the voucher model in education, demonstrating through empirical evidence why they do not work in reality. Finally, it discusses the main policy implications. 1 A preliminary version of this paper was presented at the UKFIET Conference at the University of Oxford (September, 2015).