The paper presents a model of educational production which tries to make sense of recent evidence on effects of institutional arrangements on student performance. In a simple principal-agent framework, students choose their learning effort to maximize their net benefits, while the government chooses educational spending to maximize its net benefits. In the jointly determined equilibrium, schooling quality is shown to depend on several institutionally determined parameters. The impact on student performance of institutions such as central examinations, centralization versus school autonomy, teachers' influence, parental influence, and competition from private schools is analyzed. Furthermore, the model can rationalize why positive resource effects may be lacking in educational production.
We develop a model of human capital formation with endogenous labor supply and heterogeneous agents to explore the optimal level of education subsidies along with the optimal schedule of the labor income tax. If the government can observe inputs into the production of human capital, subsidies on education ensure efficiency in human capital accumulation and labor taxes are more progressive than without education policies. Although the able benefit more than proportionally from education subsidies, education subsidies thus play an important role in alleviating the tax distortions in human capital accumulation induced by redistributive policies. If the government can not verify all investments in human capital, education policy offsets some but not all the tax-induced distortions on learning.
We survey the determinants of earnings and propose a framework for understanding labor market success. We suggest that the advantages of the children of successful parents go considerably beyond the benefits of superior education, the inheritance of wealtth
This paper reviews a set of recent studies that have attempted to measure the causal effect of education on labor market earnings by using institutional features of the supply side of the education system as exogenous determinants of schooling outcomes.
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This paper offers an explanation for the widespread phenomenon of uniform public schooling, which is viewed here as a way for the government to precommit itself to restraints on future income redistribution. Such precommitment is likely to enhance accumulation of human capital, to bolster economic growth, and, under certain circumstances, to constitute a preferred choice for a majority of voters.
Some of the important implications of the parental investment model of intergenerational mobility have been derived under the assumption that parental income is the main source of heterogeneity. We explicitly model the variability and inheritability of innate' earnings ability and the variability of tastes, showing how they affect observed degrees of intergenerational consumption and earnings mobility. Heterogeneity increases the difficulty of detecting the existence of borrowing constrained families. Conversely, the presence of heterogeneity means that economic and linear statistical models of inheritance generate similar intergenerational data on consumption and earnings. In this sense, our findings offer some support for Goldberger's (1989) criticism of human capital models of inheritance. Finally, we suggest that any cross-country differences in intergenerational earnings mobility are more readily interpreted according to the heterogeneity of inherited ability, rather than optimal family responses to country-specific institutions for accumulating human capital.
Starting out from a simple conceptual framework running from initial individual abilities to skills produced in school to the utilization of these skills in the labor market, this paper surveys empirical studies in labor economics, economics of education and occupational psychology to assess the empirical strength of the links between these sets of variables. Cognitive and non-cognitive abilities are relevant for economic success, but make a modest contribution. Occupational psychology is complementary to economics and supports the notion of interlocking heterogeneity of individuals and jobs. Copyright 2001 by The International Association for Research in Income and Wealth.
This paper considers the sources of skill formation in a modern economy and emphasizes the importance of both cognitive and noncognitive skills in producing economic and social success and the importance of both formal academic institutions and families and firms as sources of learning. Skill formation is a dynamic process with strong synergistic components. Skill begets skill. Early investment promotes later investment. Noncognitive skills and motivation are important determinants of success and these can be improved more successfully and at later ages than basic cognitive skills. Methods currently used to evaluate educational interventions ignore these noncogntive skills and therefore substantially understate the benefits of early intervention programs and mentoring and teenage motivation programs. At current levels of investment, American society underinvests in the very young and overinvests in mature adults with low skills.
This paper considers alternative policies for promoting skill formation that are targetted to different stages of the life cycle. We demonstrate the importance of both cognitive and noncognitive skills that are formed early in the life cycle in accounting for racial, ethnic and family background gaps in schooling and other dimensions of socioeconomic success. Most of the gaps in college attendance and delay are determined by early family factors. Children from better families and with high ability earn higher returns to schooling. We find only a limited role for tuition policy or family income supplements in eliminating schooling and college attendance gaps. At most 8% of American youth are credit constrained in the traditional usage of that term. The evidence points to a high return to early interventions and a low return to remedial or compensatory interventions later in the life cycle. Skill and ability beget future skill and ability. At current levels of funding, traditional policies like tuition subsidies, improvements in school quality, job training and tax rebates are unlikely to be effective in closing gaps.
I analyze a two-dimensional model of political decision-making with endogenous political parties. Society chooses both the tax rate and the allocation of the revenues between income redistribution and public education.
I assess the magnitude of human capital spillovers by estimating production functions using a unique firm-worker matched data set. Productivity of plants in cities that experience large increases in the share of college graduates rises more than the productivity of similar plants in cities that experience small increases in the share of college graduates. These productivity gains are offset by increased labor costs. Using three alternative measures of economic distance--input-output flows, technological specialization, and patent citations--I find that within a city, spillovers between industries that are economically close are larger than spillovers between industries that are economically distant.
This paper uses a computational general equilibrium model to analyze the impact of public school finance regimes on rates of private school attendance. It is shown that, when viewed in such a general equilibrium context, state intervention in locally financed systems can have somewhat unexpected and counterintuitive effects on the level of private school attendance. In particular, the common perception that centralization of public school finance will necessarily lead to greater private school attendance is no longer correct when general equilibrium forces are taken into account even when that centralization involves an extreme equalization of the kind observed in California. Furthermore, if centralization occurs through less dramatic means that allow for some remaining discretion on the part of local districts, declines in private school attendance become much more unambiguous and pronounced. These results then weaken the speculation that low exit rates to private schools in centralizing states imply that general public school quality does not drop as a result of such centralization.
Economics of education is a relatively new field. In the four decades of its existence, it has generated a great number of hypotheses, empirical findings and Nobel Laureates. However, in the world live, there is an obvious divide between theory and practice -- Ministries of Education, in both industrial and developing countries, often act as if economics of education did not exist. Unfortunately, the same applies to international organizations with a mandate in education. The paper starts by reviewing major findings in the economics of education and their relevance to education policy making. It discusses the reasons why some robust research findings do not translate into practice. And it concludes by listing a number of research questions that are still open in the field.
This study examines a crucial assumption in much of the recent work on endogenous growth, namely, constant returns to scale in producing human capital. A simple model is constructed to show that the returns to scale in human capital production can be inferred from the relationship between the wage rate and years of schooling. A large international micro dataset is used to estimate this relationship. The empirical evidence indicates that human capital production displays significant increasing returns at low levels of educational attainment, and significant decreasing returns at high levels of educational attainment.
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