Economic Analysis of Education: Public-Private Roles E. Jimenez March 2008

Analyzing public-private interactions: Outline A Quiz on the functions of government: financing, providing and regulating Financing education – analyzing issues and options Providing and regulating education – analyzing issues and options

Q1. The figure below shows: a) Private education expenditure as % of total b) Public education expenditure as % of total 0% 50%100% S. Africa Malaysia Bolivia France UK Venezuela Ghana USA Indon. German. Peru Uganda Sierra Leone S. Korea Netherlands

Q2. The figure below shows (secondary) a) Private education enrollment as % of total b) Public education enrollment as % of total 0% 50%100% Mexico USA Niger Cyprus Kuwait France Australia KoreaChile Belgium Netherlands Mauritius

Options for intervention Degree of public financing 100% 0% 100% Degree of public provision Unsubsidized private sector (Philippine, tertiary level) Public schools with no cost recovery (many)

Options for intervention Degree of public financing 100% 0% 100% Degree of public provision Unsubsidized private sector (Philippine, tertiary level) Voucher supported schools; Regulated private schools (Netherlands, Belgium) Public schools with no cost recovery (many) Public facilities with cost recovery (US universities)

What lessons? Public intervention through finance is different from provision It’s hard to generalize where the private sector may be large. If there is a private sector, then the gov’t has an important regulatory role. Finance, provision and regulation must be set to meet economic efficiency and equity goals

Analyzing public-private interactions: Outline Functions of government: financing, providing and regulating Financing education – analyzing issues and options Providing and regulating education – analyzing issues and options

Market failures in education Characteristic Market Failures –Externalities Productivity Nation-bldg, community Applies to? –Primary education: the effects of numeracy and literacy

Example of externality effects: Effect on earnings of an illiterate of having a literate member in the household (%) in Pakistan, Source: Pakistan Poverty Assessment, 2001 World Bank

Example of externality effects: Effects on health

Market failures in education Characteristic Market Failures –Externalities Productivity Nation-bldg, community Applies to? –Primary education: the effects of numeracy and literacy -- Research

Market failures in education Characteristic Market Failures –Externalities Productivity Nation-bldg, community –Capital Mkt Failures Redistribution Higher education

Richest 20 percent Egypt Philippines 1998 India Bolivia 1997 Kenya 1998 Brazil 1996 Mozambique 1997 Mali Grade Median grade attained by year olds: Inequalities in education outcomes

Egypt Philippines 1998 India Bolivia 1997 Kenya 1998 Brazil 1996 Mozambique 1997 Mali Grade Median grade attained by year olds: Inequalities in education outcomes Poorest 40 percent

Proportion of public subsidy received by poorest quintile Colombia: 92; Kenya: 92/3; Ghana 91/2; Indonesia, Malaysia 89

Analyzing public finance: What is the appropriate public share in exp? Because public budgets are constrained, priorities must be set – does spending correct for market failure? –Basic: strong efficiency & equity –Higher: strong efficiency in some areas but poor equity –Tech/Voc: weak efficiency & equity

Analyzing public-private interactions: Outline Functions of government: financing, providing and regulating Financing education – analyzing issues and options Providing and regulating education – analyzing issues and options

Analyzing public-private provision Given that public chooses to finance, should it provide? –Scale economies –Control

Analyzing public-private provision Given that public chooses to finance, should it provide? –Scale economies –Control Why might it finance and not provide?

Private schools deliver better education at lower cost Ratio of private to public cost and achievement

Analyzing public-private provision Given that public chooses to finance, should it provide? –Scale economies –Control Why might it finance and not provide? –Lower unit costs: stimulate competition, increase accountability, reward perform.

Contracting with communities: El Salvador School governance to community associations: hire/fire teach, adm gov funds Members elected from community Legally responsible for operations

El Salvador Achievement Results Without: w/o school input and community participation variables; * Significant at 5% Values are in terms of Raw Scores (Averages are 4 and 2) *

Analyzing public-private provision Given that public chooses to finance, should it provide? –Scale economies –Control Why might it finance and not provide? –Lower unit costs: stimulate competition, increase accountability, reward perform. –Concern: equity

Enrollment in Slums in Lahore Data: 1,000 HHs in 26 slum areas % of children in HHs living on less than $1/day: 55% Percent of Children Enrolled in Lahore by Income Group, School type Alderman, Orzem and Paterno, “School Quality, Cost and Public/Private School Choice of Low Income HHs in Pakistan WP 2, Impact Evaluation of Education Reforms, DECRG, World Bank 1996

Analyzing public-private provision Given that public chooses to finance, should it provide? –Scale economies –Control Why might it finance and not provide? –Lower unit costs –Problem may be demand, not supply side

FSSAP Bangladesh Criteria: –Attendance in school –Passing grade –Unmarried Girls to receive scholarship deposited to account set up in her name School to receive support based on # of girls

Pakistan: Encouraging private schools to meet social goals Urban Girls’ Fellowship Program in Quetta: is establishing private schools in poor neighborhood cost-effective? Subsidies paid directly to schools for 3 years: –Initial: Rs.100 ($3)/mo/girl to limit of Rs10K plus Rs.200/girl –Reduced in 2nd and 3rd years; then zero. –Unsubsidized boys to be no more than 1/2 of enrollment Randomized selection of neighborhoods

Pakistan: Encouraging private schools to meet social goals

Source: J. Kim, H. Alderman and P. Orazem, 1998

Analyzing public-private interactions: Outline Functions of government: financing, providing and regulating Financing education – analyzing issues and options Providing and regulating education – analyzing issues and options: analyze NET impacts

Private-Public Interactions: Estimating NET Impacts What happens to quantity when the public sector expands? Build more schools: –attract more students who didn’t go to school –attract more students from private schools Increase subsidies: –attract more students into schools –cause private spending to decline.

Philippines: Effect of Enrolling 10 more students in public secondary schools Source: E. Jimenez and Y. Sawada, forthcoming, “Public for private: the relationship between public and private enrollment in the Philippines,” Economics of Education Review.

Messages Public finance and provision are distinct Investigate the market for education –Market failures are not the same for all levels – Public investment can affect overall market Alternative delivery mechanisms can work

Implications for economic analysis Define the counterfactual Measure externalities or other market failures Measure distributional effects These are not easy. In addition must resolve Attribution Measurement of diverse outcomes