Private Costs of education are tuition, other fees, transportation, meals, perhaps lodging, and, most importantly, the time of the child. Public Costs are the government subsidies for education. In general the per student cost of subsidies is relatively low for primary school, higher for secondary school and very high for tertiary (post- secondary) school (see Table passed out in class). 4
Private Benefits are primarily the increase in income that comes from a higher level of education, but could also include better ability to process and apply a whole variety of information, such better knowledge of how to prevent and treat common illnesses. Public Benefits are harder to pin down. Two common examples are reduced crime and increased basic research. Research on this is still in its infancy. In general, parents and their children make their schooling decisions only on the basis of private costs and private benefits, ignoring public costs and benefits. III. A Two-Period Model of Investments in Education (Glewwe, 2002) Behavioral models of schooling decisions help us think more systematically about education issues, and they also have implications for econometric estimation of relationships of interest. In the rest of this lecture we will examine two such models. Assume that parents make decisions for their children. They maximize a utility function that 5
depends on consumption (of goods and services) and child cognitive skills. For simplicity, assume: • only one child per family • only two time periods • In period 1, a child may attend school, work, or both. If both, the child first goes to school and works only after schooling is completed • In period 2, child becomes an adult and works • Children who work in periods 1 or 2 give some or all of their earnings to their parents. Utility is a function of parents’ consumption in both time periods (C 1 & C 2 ) and child cognitive skills (A): U = C 1 + δ C 2 + σ A (1) where δ is a discount factor for future consumption and σ is parental tastes for educated children (higher values imply greater utility from educated children). Parents value educated children for 2 distinct reasons: 6
• educating children can raise their consumption • educated children directly raises utility (via σ ) A simple production function for cognitive skills (A) is: A = α f(Q)g(S), (2) where α is the “learning efficiency” of the child, Q is school quality, and S is years of schooling. Assume f ′ ( ) > 0 and g ′ ( ) > 0. A child’s learning efficiency, α , can represent: • innate (genetically inherited) ability • child and/or parent motivation • parental ability to help children with schoolwork. To complete the model, parents’ consumption in each time period is given by: C 1 = Y 1 - pS + (1 - S)kY c (3) C 2 = Y 2 + kY c (4) 7
where p is the price of schooling, Y 1 and Y 2 are parental income in periods 1 and 2, Y c is the child’s income when working full time, and k is the fraction of that income given to the parents.
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- Spring '14
- Primary school, school quality