Education is typically viewed synonymously with formal schooling. Over the past century, state-provided schooling has become the norm for the industrialized world. In the United States, approximately 90 percent of children are educated in schools that are publicly financed and operated (Toma 1996). Similar statistics hold for a significant proportion of developed countries around the world (Toma, 1996). Yet public choice scholars continue to ask normative questions regarding the desirable role of the state that have been asked for at least two hundred years (Senior, 1861; Smith, 1776; Mill, 1909). Specifically, what role should the state play in providing access to schooling and does the consumption of schooling generate externalities that require a state role in provision?
Schooling fosters the development of human capital and influences the individual’s lifelong choice set. Viewed from this perspective, schooling is an economic good whose consumption today influences future pecuniary and non-pecuniary wealth. In a pure market setting, parents consume schooling for their children if they choose to allocate current resources for benefits that will be reaped by their children at some point in the future. Assuming intergenerational benevolence, economists argue that parents will choose education for their children to the point where the discounted expected marginal benefits equal marginal costs.
With no interventions, a pure market outcome in schooling implies that the most disadvantaged in society would consume disproportionately small amounts of schooling because of current resource constraints. Left to the market, the poor will consume schooling in smaller amounts than the wealthy and the financial position of children at birth will influence lifelong income and wealth independent of factors such as ability or work effort.
Behind the veil of ignorance, the body politic may perceive that children who are born to families without access to financial resources should be protected and provided the same opportunities to develop human capital as those who are born to wealthier families. This conceptual notion raises a host of interesting questions that must then be decided through the political process. In its simplest form, state protection of the poor provides a guarantee of income to insure that the poor consume schooling but it does not answer the specific way in which this protection should be provided.
In a now classic work, Education and the State West ([1965] 1994), provides a detailed historical account of schooling developments in Great Britain and the United States. One feature of the feature of the account is the extent to which private aid was available to those who did not have resources of their own. West provides evidence that churches and other groups voluntarily contributed to the schooling of townspeople who were in economically disadvantaged straits. These contributions were occurring in a market setting prior to the development of a state system of schooling.
As the role of the state began in the late 1800s and has evolved throughout the 1900s, state protection in most of the developed world has translated into both financing of schools and provision of schooling. Implicitly, the state protection has been translated not only into a mandate that resources be redistributed so the poor can purchase schooling but it has come to mean that the poor must attend the same state-provided schools attended by others. Decisions regarding finances, curriculum to teach, the teachers to hire, the books to use, the buildings for use, and the choice of school to attend all fall under the jurisdiction of the state.
West (1965) and Lott (1990) offer public choice explanations for why the role of the state has evolved into one of provider as well as financing schools. West relied on historical data for some evidence that public provision was in part a result of political conflicts between the majority Protestants and minority Catholics. Lott portrays public provision as a means by which the state can influence the curriculum content of the schools and, thereby, indoctrinate students according to the preferences of the ruling party.
A definitive argument, either conceptually or factually, for why the state provides schooling is still outstanding. Of particular interest to public choice, however, is that the single greatest defect of public schooling that characterizes the maturation of state-provided schooling has been its failure to provide schooling for the poorest segment of society. In large metropolitan areas of the United States, for example, dropout rates commonly exceed graduation rates for the poor and minority populations. In some cities, the probability of incarceration for African American males exceeds the probability of graduation. Upper income children continue to consume the best the public system of schools has to offer (Chubb and Moe, 1990).
Observations such as these have caused scholars, even those who adhere to a state role in protecting poor children, to question whether alternative institutional arrangements might generate outcomes superior to those that have evolved under an almost complete state system of schooling. While few argue for the private donor-funded schools that preceded the state system, many examine publicly funded vouchers as an alternative mechanism to cover the cost of schooling. Under vouchers, the funding is child-centered. The funding follows the child to the school of the child’s (parent’s) choice. Conceptually, either public or private schools provide the schooling. This arrangement induces competition among suppliers and enhances efficiency in delivery as schools compete to attract enrollees into their school (Epple and Romano, 1998; Hoxby, 2000).
Vouchers raise several interesting public choice questions. First, once the state has assumed the role of chief provider of schooling, what conditions are necessary and sufficient to change the system toward a more market-oriented system of provision such as represented by vouchers? Scholars have examined vouchers that are targeted to a particular population group, such as the poor, versus vouchers for all children. The analyses emphasize the tax price effects of vouchers on the median voter to determine whether the public would support possible changes to the system of school finance.
Other public choice issues regarding vouchers concern the competitive effects of vouchers on student achievement. The perceived constitutional prohibitions against public funding of religious schools in the United States complicates this angle of provision. If vouchers are allowed but children are restricted in schools to which they apply, then competitive effects may be minimal. Finally, whether vouchers will lead to different configurations of housing patterns is also a public choice issue (Nechyba, 1999).
Beyond the protective, equal opportunity aspect of schooling, and its implications for funding of schooling, the other argument for a role of the state in education centers on externalities or spillovers. Arguments about spillovers have shifted over time. At heart of this question is whether the benefits to schooling are captured by the individual consumer or whether society at large captures the marginal benefits from schooling.
Historically, the externalities issue translated into a question of whether individuals (or their parents) would have the incentive to consume the optimal amount of schooling. In most of the western world, the returns to schooling are sufficiently high that few scholars seriously debate the consumption externalities issue. In developing countries, this may remain a legitimate question.
For the most part, the public choice externalities issue has shifted to another line of questioning entirely. The externalities question centers on the choice of which school to attend in the absence of state assignment of schools. In particular, the equilibrium mix of students within schools that would likely result under different financing arrangements and under alternative choice mechanisms is of interest. The mix of students expected to characterize schools if students and their families choose the school (state-provided or other) they attend is contrasted to the optimal mix of students. The mix typically refers to both the ability of students and their socioeconomic characteristics. The choice of schools and resulting mix of students is of interest because peers produce spillover consumption effects. The emerging empirical consensus is that low achieving children gain more from mixing with high achieving students than high achieving students lose by mixing with low achieving students.
Although scholars generally agree that high achieving individuals will not have an incentive to take the external peer effects into account as they choose schools under either a state or market arrangement, the question is to what extent the institutions (schools) will create mechanisms that lead to the internalization of the peer externalities. Private schools can use tuition pricing as a tool to internalize these peer externalities to some degree. Price discrimination on the part of these schools can influence enrollment patterns. High ability students can be rewarded, for example, for the positive externalities they generate via tuition discounts. To the degree that peer externalities are significant, pricing for schooling represents one tool for internalizing the spillovers. Owners of schools will have an incentive to utilize this discriminatory tool to the extent that mix of students is an attribute of schools desired by consumers.
While much of the scholarship in this area contrasts the student mix that markets yield relative to the optimal mix, public choice scholars emphasize that a relevant comparison is the market mix relative to that yielded by the state system of schooling. The benchmark for comparing alternative systems obviously has important welfare considerations.
There are other public choice considerations in education found in the literature. Many of these relate to alternative financing schemes. For example, some scholars have examined voter approval of bonds to finance school expenditures under a variety of voting rules. Fiscal federalism issues are also important in the area of education. While education historically has been financed largely from local revenues in the United States, the trend in recent years has been toward financing from state revenues. The effects of this shift on voter welfare and its implications for special interests are public choice issues.
Other issues in education are institutional in nature. State-provided schooling implies an institutional arrangement for translating voter preferences regarding education into educational output. The arrangement that has evolved in most industrialized countries is complex. At minimum, there is a bureaucratic agency charged with responsibility of the operation of schools. Issues such as selection methods and terms of office for the bureaucracy are relevant for the responsiveness of the agency to taxpayer preferences. Selection of teachers and the degree to which teachers influence educational policy also interest public choice scholars.
Today, education continues as a major public policy item not only in the industrialized world but increasingly in the developing world as well. Scholars debate whether the level of economic development results from high educational levels or whether education contributes to economic development. Many view education as the key to future development and, as such, it is not likely to decrease in importance as a topic for scholars. Public choice has much to offer in understanding the relationship between the state and education.
