NBER Reporter: Fall 2001

Economics of Education

The NBER's Program on the Economics of Education, directed by Caroline M. Hoxby, NBER and Harvard University, met in Cambridge on November 1. The following papers were discussed:

Michael Kremer, NBER and Harvard University, and Edward Miguel, University of California at Berkeley, "Worms: Education and Health Externalities in Kenya" (NBER Working Paper No. 8481)

Raquel Fernández, NBER and New York University, "Education, Segregation, and Marital Sorting: Theory and an Application to the U.K. Data" (NBER Working Paper No. 8377)

Esther Duflo, NBER and MIT, "The Medium-Run Effects of Educational Expansion: Evidence from a Large School Construction Program in Indonesia"

Thomas J. Nechyba, NBER and Duke University, "School Finance, Spatial Segregation, and the Nature of Communities"

Intestinal helminths -- including hookworm, roundworm, schistosomiasis, and whipworm -- infect more than one-quarter of the world's population. A randomized evaluation by Miguel and Kremer of a project in Kenya suggests that school-based mass treatment with deworming drugs reduced school absenteeism in treatment schools by one quarter; the gains were especially large among the youngest children. Deworming is cheaper than alternative ways of boosting school participation. By reducing the transmission of disease, deworming creates substantial benefits among untreated children in the treatment schools and among children in neighboring schools. These externalities are large enough to justify fully subsidizing treatment. The authors find no evidence that deworming improves academic test scores, though. Existing experimental studies, in which treatment is randomized among individuals in the same school, find that deworming treatment has small and insignificant effects on education; however, these studies underestimate the true treatment effects if deworming indeed creates positive externalities for the control group and reduces attrition in the treatment group.

Fernández presents a model of the intergenerational transmission of education and marital sorting. Parents matter both because of their household income and because their human capital determines the distribution of a child's disutility from making an effort to become skilled. The author shows that in the steady state an increase in segregation has potentially ambiguous effects on the fraction of individuals who become skilled, and hence on marital sorting, the personal and household income distribution, and welfare. Using U.K. statistics, she finds that an increase in the correlation of spouses' years of education will bring about a small increase in the proportion of skilled individuals when the relative supply of skilled individuals is endogenous, and a decrease when the supply is exogenous. The welfare effect of increased sorting is negative for unskilled individuals, but ex ante utility is greater in the endogenous case.

Duflo studies the medium-run consequences of an increase in the rate of accumulation of human capital in a developing country. From 1974 to 1978, the Indonesian government built over 61,000 primary schools. The program led to an increase in education among individuals who were young enough to attend primary school after 1974, but not among the older cohorts. Duflo's estimates suggest that an increase of 10 percentage points in the proportion of primary school graduates in the labor force reduced the wages of the older cohorts by 3.8-10 percent and increased their formal labor force participation by 4-7 percent. Her results suggest that physical capital did not adjust to the faster increase in human capital. This suggests that adjustment to shocks is extremely slow in developing countries.

While the issue of school finance has been studied extensively, relatively little effort has been devoted to understanding how school finance policies affect the nature of communities. This is peculiar in light of substantial evidence that public school quality -- at least in the United States -- has much to do with residential choices by households, and in light of increasing empirical evidence that residential segregation perpetuates income inequality. In this paper, Nechyba emphasizes the importance of considering not only the level of government that is funding public schools but also the role played by the private sector. Somewhat surprisingly, simulation results based on U.S. data suggest that, in terms of producing spatial income segregation, the role of centralization versus decentralization of public school financing is quite secondary to the role played by the private sector. Motivated by this insight, the author reports on additional simulations involving explicit government support for private schools in the form of vouchers.

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