Slide #1.

6 The Economics of Education Crisis and Reform
More slides like this


Slide #2.

Introduction Effectiveness of the US education system The US education “crisis” Alternative ways of offering education Rationales for government intervention
More slides like this


Slide #3.

Effectiveness of K-12 Education Country Math Science United States 504 527 Singapore 605 578 Japan 570 552 Netherlands 536 536 Russian Federation 508 514 Australia 505 527 Sweden 499 524 Italy 484 491 Norway 461 494 Cyprus 459 441 American eighth graders versus the world, 2003
More slides like this


Slide #4.

Effectiveness of K-12 Education Country Expenditu Expenditu re re as % /student of GDP ($) United States 8855 3.5 Norway 8476 3.9 Italy 7218 3.2 Australia 6894 3.9 Sweden 6339 4.9 Japan 6266 2.7 Netherlands 5912 3.2 International Comparison of Education Expenditure
More slides like this


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
More slides like this


Slide #6.

Objective Understanding the market for education What is the most appropriate framework for offering education? Suggestion for reforming the current system
More slides like this


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
More slides like this


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
More slides like this


Slide #9.

Market for K-12 $ Supply (MC) $5,000 Demand 0 Q equilibrium Quantity
More slides like this


Slide #10.

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
More slides like this


Slide #11.

Externalities From Education Consumer 1 1 1 10 1 Marginal social benefit > Marginal private benefit
More slides like this


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?
More slides like this


Slide #13.

Externalities From Education $ MSB 1 $5,000 0 Q equilibrium • The spillover effect is relatively small. • The MSB Supply (MC) is given by MSB1 • The market for education Demand is efficient Quantity
More slides like this


Slide #14.

Externalities From Education $ $5,000 0 • The MSB 2 spillover effect is relatively large. • The MSB Supply (MC) is given by MSB2 • The market for education Demand is Quantity Q equilibriumQ optimal inefficient
More slides like this


Slide #15.

Externalities From Education $ MSB 1 A subsidy of $1000 Supply (MC) $5,000 Supply (MC) with the subsidy Demand $4,000 0 Q equilibriumQ optimal Quantity
More slides like this


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.
More slides like this


Slide #17.

Rationale for government intervention Taylor, Lori (1999). “ Government’s 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
More slides like this


Slide #18.

Rationale for government intervention Taylor, Lori (1999). “ Government’s 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
More slides like this


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
More slides like this


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
More slides like this


Slide #21.

Rationale for government provision Taylor, Lori (1999). “ Government’s 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
More slides like this


Slide #22.

Rationale for government provision Taylor, Lori (1999). “ Government’s 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
More slides like this


Slide #23.

Inefficiencies of Public Provision Excessive centralization Bureaucracy Lack of effective parental input Lack of competition These inefficiencies impact the educational output
More slides like this


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 
More slides like this


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?
More slides like this


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
More slides like this


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
More slides like this