Question

Is education a public good? Does education have external benefits? If so, what are some of those public benefits? In your opinion are the external benefits large or small? Why? What should government do to promote the efficient provision of products that have external benefits? If you think that government should put more resources into education, what might be some of the opportunity costs of that decision? How would an economist determine the right amount of government support for education?

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Answer 1

Education is not a public good, because it comes with excludability as well as rivalrousness. It means that there is a fee for education even if it can be very less to get admission for the education. Further, there are limited number of seats, so admission of one student to pursue education, limits the chance of education for others.

Education has external benefits. It is due to the reason that educated person can pursue some research work, bring innovation and develop new product that can be used by many people in the society or in the world. It helps spreading the benefits. So, the first public benefit is the contribution in research that is used by others for their own benefits. The second benefit is the other people also pursuing education as educated person becomes a role model. It helps human capital development. The third benefit is the improvement in the livelihood of the people in the society and poverty level decreases as more individuals get educated. So, these external benefits are large in nature, because it transforms the whole human capital development, skills of the workers and talent pool of the economy to its competitive advantage.

The first initiative should be to subsidize the education by providing grants and funds to the institutions. It will increase the volume of education and more individuals, kids and others can get education at lower cost. So, the benefits of education can be maximized. The second initiative is to provide subsidies, tax credit or other benefits to the individuals who pursue education and or send their kids for education. It makes demand for education to increase and more people will be educated, without paying excess fee as they are getting compensated. The third initiative is to make more organized education policies for the people that bring less burden and create more incentives for pursuing education.

There will also be some opportunity cost of it. The first opportunity cost, is foregoing the investments that could be done in other sectors such as defense and Pharmaceutical research. The second opportunity cost is the less spending on social security payments that can happen as more of the funds are being used for education. The third opportunity cost is the foregoing of some of the direct cash transfers to poor as funds are being used for the education of their and others kids.

The right amount of support is achieved when marginal social benefits from education, becomes equal to the marginal social cost of education.