Education

Question 1

What are the positive externalities arising from education?

Answer 1

Citizenship, productivity and redistribution

Question 2

What are the consequences of a high productivity?

Answer 2

• Spillovers –> one person’s increased productivity could increase someone else’s too, raising wages and well-being
• Taxes –> if a person’s higher productivity reflects in higher pay, then governments can benefit from higher tax revenues

Question 3

What are the consequences of enhanced citizenship?

Answer 3

• More informed citizens and active voters –> improve the quality of the democratic process
• Less crime –> improves safety and lowers public costs of policing
• Enable immigrants to establish themselves

Question 4

Positive externalities on education are compelling arguments for what type of public funding?

Answer 4

Public intervention in basic education, but less rationale for secondary & higher education

Question 5

What would happen in a private-education only world?

Answer 5

Parents wouldn’t be able to buy their kids education and would be unlikely to succeed in getting bank loans because there is no collateral. This causes the EDUCATIONAL CREDIT MARKET FAILURE

Question 6

What is the educational credit market failure?

Answer 6

When the credit market has failed to make a loan that would raise total social surplus by financing public education

Question 7

What is the failure to maximize family unit?

Answer 7

When, even if families would be able to borrow funds to finance their kids’ education, families could still choose not to make the proper sacrifice to finance a good level of education to their kids

Question 8

How is redistribution linked to public education funding?

Answer 8

Private system would limit income mobility for lower-class kids

Question 9

What are the two mechanisms used by the government to interfere in education?

Answer 9

• Price mechanism –> offer discounts on educational costs on private education
• Quantity mechanism –> mandate that individuals obtain a certain level of education

Question 10

What is the price mechanism used by the government to interfere in education?

Answer 10

offer discounts on educational costs on private education

Question 11

What is the quantity mechanism used by the government to interfere in education?

Answer 11

mandate that individuals obtain a certain level of education

Question 12

What are educational vouchers?

Answer 12

A fixed amount of money given by the government to families who can spend it either in public or private schools

Question 13

What are the pros of educational vouchers? (no explanation)

Answer 13

• Consumer sovereignty

- Competition

Question 14

What is consumer sovereignty in educational vouchers?

Answer 14

Allow individuals to more closely match their educational choices with their tastes

Question 15

How does educational vouchers introduce competition?

Answer 15

Educational vouchers would make people choose schools that deliver the best product, so inefficient ones would not be chosen. Vouchers would level the playing field between private and public schools, removing the financial advantage currently held by the public ones.

Question 16

What are the cons of educational vouchers?

Answer 16

• Excessive school specialization
• School segregation
• Inefficient use of public resources
• Education market might not be competitive
• Costs of special education

Question 17

How do vouchers contribute to excessive school specialization?

Answer 17

Schools will tailor themselves to meet individuals’ preferences and threaten the common program

Question 18

How could school specialization be solved?

Answer 18

In principle, it could be solved with regulation, but with time it would become onerous and defeat the purpose of school choice

Question 19

Why are vouchers an inefficient use of public resources?

Answer 19

With vouchers, total public-sector costs would rise because the government would pay a share of the private school costs that are already being paid by individuals.

Question 20

What would be a solution to vouchers an inefficient use of public resources

Answer 20

Target the voucher’s value to the family income. Higher amounts to families that need an education upgrade, reducing inequity in private schools

Question 21

How is the education market?

Answer 21

Arguments in favor of education vouchers are based on a perfectly competitive market, when in reality it is more of a natural monopoly

Question 22

What would happen to children who need special education in a voucher-like system?

Answer 22

These kids cost more and a common-cost voucher would not be sufficient for everyone, so schools would have an incentive to avoid special education or institute low quality systems for them

Question 23

What are the two theories on enhancing productivity with education?

Answer 23

• Education as human capital accumulation

- Education as a screening device

Question 24

What does the Education as human capital accumulation theory say?

Answer 24

More education raises a worker’s stock of skills and allows the individual to earn more on the labor market

Question 25

What does the Education as a screening device theory say?

Answer 25

Higher education provides a means of separating high-ability individuals from low-ability ones. That is, who pursues more education is more motivated, but only increases their own productivity, so no social capital enhancement

Question 26

How do the theories on productivity affect public policies?

Answer 26

In the human capital theory, governments should provide the means for people to pursue higher education, in order to enhance social capital. On the other hand, on the screening theory, governments should support the ESTABLISHMENT of education institutions, but not to subsidize any individual. This is because the returns on education are purely private, not social, it actually lowers the educational value of others