This book examines the decentralization and privatization of schools in Chile. It analyzes whether the introduction of market mechanisms in the supply of, and demand for, schools enhances educational performance. The text discusses the microeconomic assumptions underlying the proposition that elementary and secondary education could function as a market. Chile adopted free-market principles in elementary and secondary education in 1980, and public school administration was transferred from the capital to the municipalities. The government then began financing tuition-free private schools. The text reviews the Chilean reforms in light of public-choice theory and uncovers a series of policy problems that have undermined the functioning of the Chilean system. The book discusses the Chilean reforms, presents survey data, and develops a model for the factors that contribute to success in the Chilean system. It examines the politics of reform in Chilean education and states that autonomy from interest groups permitted the military regime to impose reforms, whereas the democratic government's reform efforts stumbled against the influence of the teachers' union. The conclusion explores the implications of the study for education policy and describes the structural factors intrinsic to education that prevent a simple application of postwelfare reforms. (Contains 17 tables, an index, and approximately 145 references.) (RJM)