Introduction Effectiveness of the US education system The US
education crisis Alternative ways of offering education Rationales
for government intervention
Slide 3
Effectiveness of K-12 Education CountryMathScience United
States 504527 Singapore 605578 Japan 570552 Netherlands 536 Russian
Federation 508514 Australia 505527 Sweden 499524 Italy 484491
Norway 461494 Cyprus 459441 American eighth graders versus the
world, 2003
Slide 4
Effectiveness of K-12 Education CountryExpenditure /student ($)
Expenditure as % of GDP United States 88553.5 Norway 84763.9 Italy
72183.2 Australia 68943.9 Sweden 63394.9 Japan 62662.7 Netherlands
59123.2 International Comparison of Education Expenditure
Slide 5
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
Slide 6
Objective Understanding the market for education What is the
most appropriate framework for offering education? Suggestion for
reforming the current system
Slide 7
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
Slide 8
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
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
Slide 11
Externalities From Education 10 Consumer 1 1 1 1 Marginal
social benefit > Marginal private benefit
Slide 12
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?
Slide 13
Externalities From Education Quantity 0 $ Demand $5,000 Q
equilibrium Supply (MC) MSB 1 The spillover effect is relatively
small. The MSB is given by MSB 1 The market for education is
efficient
Slide 14
Externalities From Education Quantity 0 $ Demand $5,000 Q
equilibrium Supply (MC) Q optimal MSB 2 The spillover effect is
relatively large. The MSB is given by MSB 2 The market for
education is inefficient
Slide 15
Externalities From Education Quantity 0 $ Demand $5,000 Q
equilibrium Supply (MC) Q optimal MSB 1 A subsidy of $1000 $4,000
Supply (MC) with the subsidy
Slide 16
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.
Slide 17
Taylor, Lori (1999). Governments Role in Primary and Secondary
Education, Federal Reserve Bank of Dallas Economic Review, first
quarter Positive Externalities Capital Market Failure Enforcing a
child-parent contract Altruism towards children Rationale for
government intervention
Slide 18
Taylor, Lori (1999). Governments Role in Primary and Secondary
Education, Federal Reserve Bank of Dallas Economic Review, first
quarter Justification for intervention: Ensure families have access
to credit Subsidize part of the education cost Conclusion 1:
families should pay most of the education costs
Slide 19
Rationale for government provision Does the need for Social and
Cultural Cohesion justify government provision? US population is
very diverse The need to share common experience to avoid breaking
apart along those differences K-12 system as a melting pot Builds a
shared moral framework that holds society
Slide 20
Rationale for government provision Does the need for Social and
Cultural Cohesion justify government intervention? A private
education market will lead to Schools that do not necessarily
perpetuate important cultural values, e.g., tolerance, equality
Provision of a differentiated product: schools distinguished by a
cultural, racial or religious character Segregation: schools have
children with similar backgrounds Unequal opportunity for success
as high income families have more options.
Slide 21
Rationale for government provision Taylor, Lori (1999).
Governments Role in Primary and Secondary Education, Federal
Reserve Bank of Dallas Economic Review, first quarter No Empirical
evidence suggesting the gains from common education experience
outweigh the inefficiency of public provision Conclusion 2:
Government should play no role in providing educational
services
Slide 22
Rationale for government provision Taylor, Lori (1999).
Governments Role in Primary and Secondary Education, Federal
Reserve Bank of Dallas Economic Review, first quarter Conclusion 3:
If the government finances education, then it should monitor the
educational outcome
Slide 23
Inefficiencies of Public Provision Excessive centralization
Bureaucracy Lack of effective parental input Lack of competition
These inefficiencies impact the educational output
Slide 24
Education Crisis? Output of Education System: Proficiency in
different subjects Interpersonal skills Cultural and ethical values
How to measure the education output? Scores Graduation rates
Lifetime earnings
Slide 25
Solutions School Choice and Vouchers Problems: cream skimming,
more segregation School Resources: e.g., smaller class size
Effective, but do gains justify costs?
Slide 26
Solutions No Child Left Behind a Performance Standard Measures
the education output through standardized tests Punish schools that
do not reach target proficiency Problems: incentives to change
standard, diminishing marginal improvement to school effort,
ignores education production function and other factors that are
influential
Slide 27
Education Production Function Achievement = f (H, P, T, S) H:
Home environment P: Peer group T: Teachers S: Class size
Externalities from the peer group Favorable peers are smart,
motivated, not disruptive Evidence that low achievers have the most
to gain Evidence that peer effects most important for grades
5-12
