Chapter 4


1. Externalities include improvement in health, reduction in population growth, reduction in poverty, adoption of new technologies, strengthening of democracy, etc. The social benefit of a large, high educated population is larger than private benefit represented by GNP.

2. Government would be wiser than the individuals in understanding the implications of investing in education. People may be unaware of the benefits of education just like they are so about the harmful social effects of smoking in public.

3. Education credit markets are incomplete which inhibit students from borrowing against the uncertain future return of higher education. Offering human capital as collateral involves problems that lead to underinvestment in education. ...

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