Mixed goods Flashcards
What’s a mixed good? and what’s its public component?
a mixed good has a component with the characteristics of a
private good (divisible and appropriable) and another
component with characteristics of a public good (indivisible
and nonexcludable)
Why Should the Government Be Involved in
Education?
*Productivity
o Society can benefit from the higher standard of
living that comes with increased productivity.
*Citizenship
o Education may make citizens more informed and
active voters, improving the quality of the
democratic process
Educational credit market failure: The failure of the
credit market to make loans that would raise total
social surplus by financing productive education.
o Without public education, many families would
borrow money for their children’s education.
o This market likely would not function well.
- Failure to maximize family utility
o Parents may not choose an appropriate level of
education for their children.
Redistribution
o As long as education is a normal good, higherincome families would provide more education.
o Income mobility has long been a stated goal for
most democratic societies, and public education
supports this goal
Which aare the two main interpretatiosn of levels of education on +roductivity? and its implications?
Education as human capital accumulation
o Human capital: A person’s stock of skills, which
may be increased by further education.
Implication: Government would want to
support education to raise their productivity
*Education as a screening device
o Screening: A model that suggests that education
provides only a means of separating high- from
low-ability individuals and does not actually
improve skills Implication: Some screening value to obtaining a high school or
higher education degree.
What is a possible consequence of public provision of education?
This system may crowd out private education
provision.
o Absent free public schools, some parents would
send their children to expensive, high-quality
schools.
o With free public schools, parents can reduce
quality by a small amount but save a lot
What is a solution for the crowd-out problem? And what are the two arguments that support this solution?
Educational vouchers: A fixed amount of money given by the government to families with school-age children, who can spend it at any type of school, public or private.
*Vouchers put private schools and public schools on
equal footing.
Two arguments for them:
-CONSUMER SOVEREIGNTY: Vouchers allow individuals to more closely match
their educational choices with their tastes.
- COMPETITION:Vouchers allow the education market to benefit
from the competitive pressures that make private
markets function efficiently
What are the argiuments against vouchers?
*Excess specialization
o By focusing on particular market segments, schools
give less focus to the key elements of education.
*Vouchers will lead to segregation
o Critics of voucher systems argue that vouchers
have the potential to reintroduce segregation
along many dimensions, such as race, income, or
child ability
- Vouchers are an inefficient and inequitable use of
public resources
o With vouchers, total public-sector costs would rise,
as the government would pay part of the private
school costs that families currently pay. - The education market may not be competitive
o The education market is described more closely by
a model of natural monopoly, with efficiency gains
to having only one monopoly provider of the good.
How can public financing of education be done?
- Direct student loans: Loans taken directly from the
Government. - Guaranteed student loans: Loans taken from private banks for which the banks are guaranteed repayment by the government.
- Tax relief: tax credits and deductions for educational
expenses
What does the optimal amount of education of government intervention depend on?
The optimal amount of government intervention in
education markets depends on the extent of market
failures in private provision of education and on the
public returns to education
