Economic Analysis of Education: Public-Private

Roles E. Jimenez

March 2008

Analyzing public-private interactions: Outline

• A Quiz on the functions of government: financing, providing and regulating

• Financing education – analyzing issues and options

• Providing and regulating education – analyzing issues and options

Q1. The figure below shows:a) Private education expenditure as % of total b) Public education expenditure as % of total

0% 50% 100%S. AfricaMalaysia

BoliviaFranceUK

VenezuelaGhanaUSA

Indon.German.

PeruUgandaSierra LeoneS. Korea

Netherlands

Q2. The figure below shows (secondary)a) Private education enrollment as % of total b) Public education enrollment as % of total

0% 50% 100%

MexicoUSANigerCyprus

KuwaitFrance

AustraliaKorea Chile

Belgium

NetherlandsMauritius

Options for interventionDegree of public financing

100%

0% 100%Degree of public provision

Unsubsidized privatesector (Philippine, tertiary level)

Public schools with no cost recovery (many)

Options for interventionDegree of public financing

100%

0% 100%Degree of public provision

Unsubsidized privatesector (Philippine, tertiary level)

Voucher supportedschools; Regulatedprivate schools (Netherlands, Belgium)

Public schools with no cost recovery (many)

Public facilitieswith cost recovery(US universities)

What lessons?

• Public intervention through finance is different from provision

• It’s hard to generalize where the private sector may be large.

• If there is a private sector, then the gov’t has an important regulatory role.

• Finance, provision and regulation must be set to meet economic efficiency and equity goals

Analyzing public-private interactions: Outline

• Functions of government: financing, providing and regulating

• Financing education – analyzing issues and options

• Providing and regulating education – analyzing issues and options

Market failures in education

Characteristic• Market Failures

– Externalities• Productivity• Nation-bldg,

community

Applies to?

– Primary education: the effects of numeracy and literacy

Example of externality effects: Effect on earnings of an illiterate of having a literate

member in the household (%) in Pakistan, 1998-99

0

1

2

3

4

5

6

7

8

Urban Source: Pakistan Poverty Assessment, 2001 World Bank

Example of externality effects:Effects on health

1 Child mortality by educational attainment of the mother

0 1 0 0 2 0 0 3 0 0

D e a t h s p e r 1 ,0 0 0 liv e bir t h s

Ma li 1 9 9 5 - 9 6

B o liv ia 1 9 9 4

Ug a n d a 1 9 9 5

Ne p a l 1 9 9 6

Y e me n 1 9 9 1 -9 2

Mo r o c c o 1 9 9 2

N o educatio nP rimary o nly

S eco nd ary o r hig her

Ph illip in e s 1 9 9 3

Note: Mortality data are for children under five. Source: DHS Final Reports, various years.

Child mortality falls as mothers learn.

Market failures in education

Characteristic• Market Failures

– Externalities• Productivity• Nation-bldg,

community

Applies to?

– Primary education: the effects of numeracy and literacy

-- Research

Market failures in education

Characteristic• Market Failures

– Externalities• Productivity• Nation-bldg,

community– Capital Mkt

Failures• Redistribution

Higher education

Richest 20 percent

0 2 4 6 8 10

Egypt 1995-96

Philippines 1998

India 1992-93

Bolivia 1997

Kenya 1998

Brazil 1996

Mozambique1997

Mali1995-96

Grade

Median grade attained by 15-19 year olds:

Inequalities in education outcomesInequalities in education outcomes

0 2 4 6 8 10

Egypt 1995-96

Philippines 1998

India 1992-93

Bolivia 1997

Kenya 1998

Brazil 1996

Mozambique1997

Mali1995-96

Grade

Median grade attained by 15-19 year olds:

Inequalities in education outcomesInequalities in education outcomes

Poorest 40 percent

Proportion of public subsidy received by poorest quintile

00.050.1

0.150.2

0.250.3

0.350.4

0.45

Colomb Kenya Ghana Indones Malaysia

PrimarySecondaryTertiary

Colombia: 92; Kenya: 92/3; Ghana 91/2; Indonesia, Malaysia 89

Analyzing public finance: What is the appropriate public share in

exp?Because public budgets are

constrained, priorities must be set – does spending correct for market failure?– Basic: strong efficiency & equity– Higher: strong efficiency in some

areas but poor equity– Tech/Voc: weak efficiency & equity

Analyzing public-private interactions:

Outline• Functions of government:

financing, providing and regulating• Financing education – analyzing

issues and options • Providing and regulating

education – analyzing issues and options

Analyzing public-private provision

• Given that public chooses to finance, should it provide?– Scale economies– Control

Analyzing public-private provision

• Given that public chooses to finance, should it provide?– Scale economies– Control

• Why might it finance and not provide?

Private schools deliver better education at lower cost

00.20.40.60.8

11.21.4

Colombia Dom Rep Phil Tanzania

CostAchievement

Ratio of private to public cost and achievement

Analyzing public-private provision

• Given that public chooses to finance, should it provide?– Scale economies– Control

• Why might it finance and not provide?– Lower unit costs: stimulate competition,

increase accountability, reward perform.

Contracting with communities:

El Salvador• School governance to community

associations: hire/fire teach, adm gov funds

• Members elected from community• Legally responsible for operations

El Salvador Achievement Results

0.45

2.17

-0.77

0.74

-1

-0.5

0

0.5

1

1.5

2

2.5

Math Language

WithoutWith

Without: w/o school input and community participation variables; * Significant at 5%Values are in terms of Raw Scores (Averages are 4 and 2)

*

Analyzing public-private provision

• Given that public chooses to finance, should it provide?– Scale economies– Control

• Why might it finance and not provide?– Lower unit costs: stimulate competition,

increase accountability, reward perform.– Concern: equity

Enrollment in Slums in Lahore• Data: 1,000 HHs in 26 slum areas

• % of children in HHs living on less than $1/day: 55%

0102030405060708090

Bot14%

Next41%

Top 5% All

No schoolPrivatePublic

Percent of Children Enrolled in Lahore by Income Group, School type

Alderman, Orzem and Paterno, “School Quality, Cost and Public/Private School Choice of Low Income HHs in PakistanWP 2, Impact Evaluation of Education Reforms, DECRG, World Bank 1996

Analyzing public-private provision

• Given that public chooses to finance, should it provide?– Scale economies– Control

• Why might it finance and not provide?– Lower unit costs– Problem may be demand, not supply side

FSSAP Bangladesh• Criteria:

– Attendance in school– Passing grade– Unmarried

• Girls to receive scholarship deposited to account set up in her name

• School to receive support based on # of girls

Pakistan: Encouraging private schools to meet social goals

• Urban Girls’ Fellowship Program in Quetta: is establishing private schools in poor neighborhood cost-effective?

• Subsidies paid directly to schools for 3 years:– Initial: Rs.100 ($3)/mo/girl to limit of Rs10K

plus Rs.200/girl– Reduced in 2nd and 3rd years; then zero. – Unsubsidized boys to be no more than 1/2

of enrollment• Randomized selection of neighborhoods

Pakistan: Encouraging private schools to meet social goals

0

20

40

60

80

Control Girls Program Girls

Pre-Prog 1995 1996

Pakistan: Encouraging private schools to meet social goals

0

20

40

60

80

Control Boys Program Boys

Pre-Prog 1995 1996

0

20

40

60

80

Control Girls Program Girls

Pre-Prog 1995 1996

Source: J. Kim, H. Alderman and P. Orazem, 1998

Analyzing public-private interactions:

Outline• Functions of government:

financing, providing and regulating• Financing education – analyzing

issues and options • Providing and regulating education

– analyzing issues and options: analyze NET impacts

Private-Public Interactions: Estimating NET Impacts

What happens to quantity when the public sector expands?

• Build more schools:– attract more students who didn’t go to

school– attract more students from private schools

• Increase subsidies:– attract more students into schools– cause private spending to decline.

Philippines: Effect of Enrolling 10 more students in public secondary schools

-4

-2

0

2

4

6

8

Priv EnrlTot Enrl

Source: E. Jimenez and Y. Sawada, forthcoming, “Public for private: the relationship between public and private enrollment in thePhilippines,” Economics of Education Review.

MessagesMessages• Public finance and provision are distinct• Investigate the market for education

– Market failures are not the same for all levels

– Public investment can affect overall market

• Alternative delivery mechanisms can work

Implications for economic analysis

• Define the counterfactual • Measure externalities or other

market failures• Measure distributional effects These are not easy. In addition

must resolve• Attribution• Measurement of diverse outcomes