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International Handbook on the Economics of Education

Edited by Geraint Johnes and Jill Johnes

This major Handbook comprehensively surveys the rapidly growing field of the economics of education. It is unique in that it comprises original contributions on an exceptional range of topics from a review of human capital, signalling and screening models, to consideration of issues such as educational externalities and economic growth, funding models, determinants of educational success, the educational production function, educational standards and efficiency measurement. Labour market issues such as the market for teachers and the transition of students from school to work are also explored.
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Chapter 6: The Social and External Benefits of Education

Walter W. McMahon


6 The social and external benefits of education Walter W. McMahon Education externalities are social or public benefits from the education of each individual that benefit others in the society in both current and future generations. They are over and above the private benefits that the individual decision maker takes into account in making his or her private decision to invest in education. They include education’s impacts on economic development goals that are part of the quality of life but that also benefit future generations. Standard estimates of social rates of return include only a portion of the total social effects of education. They are limited to the market (or monetary) returns and do not include the non-market private or the nonmarket externality benefits of education. The purely private non-market benefits are taken into account by individuals when they make their decisions about how far to go in school. But the externality benefits, both market and non-market, are taken for granted and do not affect private decisions. The size of these externalities which include education’s impacts on development goals are the main rationale on efficiency grounds for government support of education Based on the analysis of all of the returns to schooling including externalities in relation to all investment costs, if there is under- or overinvestment, the result is not efficient and an optimal rate of economic development is not achieved. Better estimates of education externalities and impacts...

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