The Economics of Education Crisis and Reform 6

Transcript:The Economics of Education Crisis and Reform 6:
The Economics of Education Crisis and Reform 6 Introduction Effectiveness of the US education system The US education “crisis” Alternative ways of offering education Rationales for government intervention Effectiveness of K-12 Education American eighth graders versus the world, 2003 Effectiveness of K-12 Education International Comparison of Education Expenditure Education as a Publicly Provided Good K-12 education is delivered in a system of primarily public education 90% of school aged children in the US attend public schools Objective Understanding the market for education What is the most appropriate framework for offering education? Suggestion for reforming the current system Free Market for K-12: Demand side No public schools and no regulation requiring school attendance Value placed on education: Additional earning to the individual as a result of extending education Better decision making Interpersonal relationships Pure satisfaction from learning Free Market for K-12: Supply Side On the supply side we assume: The market is perfectly competitive No externalities in production (MSC=MPC) Constant marginal cost Market for K-12 Quantity 0 $ Supply (MC) Q equilibrium Externalities from Education Positive externalities in consumption: the benefits from education spill over to a third party Positive externalities from: More rapid economic growth Better functioning democratic process Better safety and hygiene Greater charitable contribution Better decision making and more efficient functioning of markets Externalities From Education 10 Consumer 1 1 1 1 Marginal social benefit > Marginal private benefit Magnitude of Spillovers Evidence: The absolute size of the positive externality declines as a student progresses through K-12 education. What does that imply about the shape of the MSB curve? Externalities From Education Quantity 0 $ Q equilibrium Supply (MC) The spillover effect is relatively small. The MSB is given by MSB1 The market for education is efficient Externalities From Education Quantity 0 $ Q equilibrium Supply (MC) Q optimal The spillover effect is relatively large. The MSB is given by MSB2 The market for education is inefficient Externalities From Education Quantity 0 $ $5,000 Q equilibrium Supply (MC) Q optimal A subsidy of $1000 $4,000 Supply (MC) with the subsidy Rationale for government intervention Does the need to ensure the provision of quality education justify government intervention? No Absent any information problems, the market provides high quality education if there is enough demand for it. Taylor, Lori (1999). “ Government’s Role in Primary and Secondary Education,” Federal Reserve Bank of Dallas Economic Review, first quarter Positive Externalities Capital