Was a question that came up when Jonathan Weinstein and I dined recently. This post is a summary of that conversation.
Certainly not if one goes by the textbook definition (non-rivalrous and non-excludable). Nevertheless, it is generally accepted that Government should fund primary and secondary education. If there is dissent, it is over whether funding should continue until tertiary education, and over whether government should limit itself to funding rather than furnishing education as well. Why should the Government be in the business of funding education at the primary and secondary level? Three answers come to mind.
1)An educated work force is essential for economic growth and competitiveness (more prosaically, its nicer to live in a world where car mechanics are capable of deduction).
If this were the case there would be sufficient incentive for the private provision of and acquisition of education.
2) An educated and informed citizenry is essential for the proper functioning of a democracy.
If one were serious about this, require a civics test before voting. The tortured history of slavery and civil rights may make this repugnant in the US, but not elsewhere. In any case, immigrants to the US who wish to acquire citizenship and so the vote must pass a such a test.
3) Insurance against the ovarian lottery?
Then, why do we provide it to all? Shouldn’t publicly supported education be means tested? If it is insurance against parents who would not invest in their children, wouldn’t it be better to send the children to boarding schools. Before you roar `how Dickensian’ (Gingrinchian?), it is worth keeping in mind that the wealthy in England have been doing it since before the flood (which upon reflection may not be the strongest argument).
We’ve touched upon the funding question, but there is another. Should the government be in the business of providing education as well? For higher education, in the US there is general acceptance of a model where students have means-tested vouchers (called pell grants, financial aid and student loans) to attend the college of their choice (from among those that have accepted them). Yet, there is resistance to such a system at the primary and secondary level. What is it one should fear happening at this level that does not materialize at the tertiary level? One possibility is sorting of students. If publicly supported education is insurance, one would want to limit the ability of private schools to sort students. One could achieve this with restrictions of selectivity. Indeed, if one looks at tertiary education in the US, private institutions that take money from state, even indirectly, are subject to regulation by the state (who takes the King’s coin etc).
If vouchers became prevalent in early schooling, the attendant boom in private school enrollments would bring with it questions of what regulations are appropriate. Drastic changes in the composition of schools make it very difficult to say what would come of a large-scale program. This is a case where using state or local-level school systems as a laboratory for new ideas is valuable. In some communities, reform is underway in the form of charter schools, but slots are very limited. For a recent article on these matters, see the following NYT Op-Ed.

7 comments
December 19, 2011 at 3:36 pm
Eran
I always assumed the excuse for government funding of education is a third party argument, similar to the one usually given for government funding of vaccination: Jonathan gets utility from you being educated because this way he can discuss interesting stuff with you over lunch. But when you consider whether to pay for your primary education you compare the price to your own utility, ignoring Jonathan’s. So in order that your decision will be the optimal for the society government subsidizes education.
December 20, 2011 at 12:55 pm
rvohra
Dear Eran
If I follow, you are arguing that we have government support at the tertiary level to solve a coordination/complementarity problem? That is, J. will not invest in his education unless he is confident that E. will invest as well. Why? Because their is some kind of network effect to education, i.e. it only has value if there are others who have it as well.
December 20, 2011 at 3:43 pm
Eran
The main issue i think is that other people also benefit from your education. complementarity here means that the people who benefit more from your education are those who have purchased education themselves, and i think this is indeed true, but the argument for government funding does not rely on complementarity, only on fact that other people also benefit from your purchase.
in the case of vaccination there is the opposite of complementarities: people who *didn’t* get vaccinated benefit from me getting vaccination because it makes diseases less likely to spread. still, the same argument says that government should subsidize my vaccination to make the market outcome efficient.
December 20, 2011 at 3:57 pm
Eran
The technical term i was looking for is externality : “a cost or benefit, not transmitted through prices, incurred by a party (Jonathan) who did not agree to the action causing the cost or benefit (You buying education, Me buying vaccination)”.
I am sure there is a theorem that says that in the presence of externality and without government subsidizing/taxing our actions market outcomes are not efficient.
December 21, 2011 at 1:44 pm
rvohra
Regarding the externality. One can `solve’ the externality problem without resort to government action by enriching the space of prices so as to price the externality. So, one could imagine that I pay another to be educated. Have not thought that through.
Suppose bas you say others benefit from my investments in education and vice-versa and the benefit is increasing in the others level of investment. If investments can be made incrementally, and returns are incremental as well, I think one can avoid the need for subsidies/taxes with a concocted game where I invest epsilon and wait to see if you invested epsilon and so on.
December 20, 2011 at 4:47 pm
kevin quinn
To the extent that education is a precondition for creating new knowledge, and since the creator of new knowledge can expect to be compensated for only a small fraction of the benefits it is responsible for, don’t we get a standard positive externality rationale for subsidising education?
December 21, 2011 at 1:56 pm
rvohra
Dear Kevin
I think this depends on exactly why one believes the creator does not get sufficient returns to cover the cost of her investment in education. Here is one story. I invest C to improve my human capital which will generate value V > C. However, to capture V, I must go through an intermediary. Negotiations with the intermediary take place after the investment in human capital are sunk (hold up!). The intermediary leaves me with an amount < C and so I don't choose to invest. Knowing this, why doesn't the intermediary commit to paying me to get an education etc. In other words an apprenticeship system. So, it seems your explanation relies on the existence of a hold up problem that is hard to solve and one that is prevalent across industries (law, medicine, engineering etc.)