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The Design of Optimal Education Policies

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De Fraja, Gianni

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Abstract

The paper studies the optimal education policy of a budget-constrained utilitarian government. Households differ in their income and in the intellectual ability of their children; income is observed by the government, but ability is private information. Households can choose to use private education, but cannot borrow to finance it. The results we obtain are striking. The optimal education policy is elitist: it increases the spread between the education achievement of the bright and the less bright children, compared to both private provision and the first-best policy. It is also such that the education received by a child depends positively on their parental income, unless they are bright. Finally, the optimal education policy is input regressive, in the sense of Arrow (1971): households with higher income and brighter children contribute less towards the cost of the education system than households with lower income and less bright children.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1792.

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Date of creation: Jan 1998
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Handle: RePEc:cpr:ceprdp:1792

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Related research
Keywords: Education; Redistribution; student loans; tuition fees;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
I22 - Health, Education, and Welfare - - Education - - - Educational Finance
I28 - Health, Education, and Welfare - - Education - - - Government Policy

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  2. Brunello, Giorgio & Rocco, Lorenzo, 2004. "Diploma No Problem: Can Private Schools Be of Lower Quality than Public Schools?," IZA Discussion Papers 1336, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Pablo D. López Zadicoff, 2006. "Universidad Pública, Abierta y Gratuita: Análisis de factores cruciales para la evaluación de esta política pública," CEMA Working Papers: Serie Documentos de Trabajo. 333, Universidad del CEMA. [Downloadable!]
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  8. Fleurbaey, Marc & Gary-Bobo, Robert J. & Maguain, Denis, 2002. "Education, Distributive Justice and Adverse Selection," CEPR Discussion Papers 2897, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Giorgio Brunello & Massimo Giannini, 2001. "Stratified or Comprehensive? The Economic Efficiency of School Design," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  10. Simona GRASSI, 2006. "On the characteristics of a mixed system of provision of a private good. An application to health care," Departemental Working Papers 2006-14, Department of Economics University of Milan Italy. [Downloadable!]
  11. Dario Maldonado, 2007. "The design of optimal education policies when individuals differ in inherited wealth and ability," DOCUMENTOS DE TRABAJO 003975, UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA. [Downloadable!]
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  12. Darío Maldonado, 2008. "Education policies and optimal taxation," International Tax and Public Finance, Springer, vol. 15(2), pages 131-143, April. [Downloadable!] (restricted)
  13. Oscar Marcenaro-Gutierrez & Fernando Galindo-Rueda & Anna Vignoles, 2007. "Who actually goes to university?," Empirical Economics, Springer, vol. 32(2), pages 333-357, May. [Downloadable!] (restricted)
  14. CREMER, Helmuth & PESTIEAU, Pierre, 2004. "Intergenerational Transfer of Human Capital and Optimal Education Policy," IDEI Working Papers 318, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  15. De Fraja, Gianni, 2002. "Affirmative Action and Efficiency in Education," CEPR Discussion Papers 3357, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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