The Demand for Education in Public and Private School Systems*

This paper is concerned with the demand for education under various institutional arrangements. Education has a number of properties which make the analysis of the demand for it both interesting and complex. First, education is provided in the United States both publicly and privately; although there are a few other publicly provided goods which are also privately supplied (e.g., police protection), education is perhaps the most important public good in which both public and private provision plays an important role. Secondly, primary responsibility for education in the United States has traditionally been placed on local governmental bodies, and hence the analysis of the demand and supply of education involves an analysis of local public goods and the relations between local and other governmental bodies. Thirdly, education is itself a complex commodity. It is a consumption good and a capital good, i.e., although much of the expenditure is justified in terms of the effects on the individual’s income in the future, many of the activities of educational institutions are primarily justifiable in terms of their immediate consumption benefits. Moreover, education affects individuals’ future incomes both by providing skills and by providing inforniation about individuals’ characteristics (the human capital versus the screening views of education). It is both a public good and a private good; that is, most of the benefits of education accrue directly to those who are being educated, although public education has been defended on the social return to having an educated citizenry. (Presumably; this refers to social returns which are not captured by the individual himself. I am a little skeptical about the importance of the social returns which are in excess of the private returns.) Finally, public education has traditionally been defended for its redistributive effects, i.e., for providing a good (which may in fact be a private good) to children independently of the wealth of the parents of the children, yet more recently it has been attacked as major contributor to inequality.