Edited by Geraint Johnes and Jill Johnes
Chapter 6: The Social and External Benefits of Education
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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