Journal Article

The Design of Optimal Education Policies

Gianni de Fraja

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 69, issue 2, pages 437-466
Published in print April 2002 | ISSN: 0034-6527
Published online April 2002 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/1467-937X.00212
The Design of Optimal Education Policies

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This paper studies the education policy chosen by a utilitarian government. In the model, households differ in their income and in their children's ability; income is observed by the government, but ability is private information. Households can use private education, but cannot borrow to finance it. The government can finance education with income tax, but at the cost of blunting the individuals' incentive to exert labour market effort. The optimal education policy we derive is elitist: it increases the spread between the educational achievement of the bright and the less bright individuals, compared to private provision. It is also such that the education received by less bright individuals depends positively on their parental income. Finally, the optimal education policy is input regressive, in the sense of Arrow (1971, Quarterly Journal of Economics, 38, 175–208): households with higher income and brighter children contribute less in tuition fees towards the cost of the education system than households with lower income and less bright children.

Journal Article.  0 words. 

Subjects: Economics

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