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Schooling, for children between specified ages, is compulsory. However, not all of these children attend public schools. Parents can elect to send their children to private schools (which we will assume is the only alternative to public schooling). There is debate in the community over the amount of subsidy provided by government to private schools. Some argue that this subsidy should be eliminated in order to reduce government outlays on education and that it is wrong for the government to subsidize private schooling. In the context of the demand and supply of schooling, evaluate this argument. Hint: Assume that the average expenditure per student by government on students in public education must remain constant.
Surprisingly, a large fraction of Indias school-going children, even the poorover 40%— attend private schools. Perhaps this is because teachers teach in private schools due to the greater accountability and intense competition and because the medium of instruction is in English, which in todays global economy is a desirable feature, even among the poorest of Indians. These private schools are by no means fancy, they have minimal infrastructure etc., but the fact that teaching happens within their walls makes them attractive. In response, there is a fledgling movement towards the development of chains of private sector schools with low fees, targeted to Indias poor. If Indias parents and children prefer private schools to poorly run government schools, then would the government be better off using some of its scarce resources to subsidize private sector education, rather than opening new government schools that are less preferred? To address this question, they model household choice of sending children to public or private schools or not sending them to school at all as a function of a variety of school characteristics, including fees, the distance traveled to the school, the availability of transportation (either families own transportation or that offered by theschool) to the children, and gender and age specific preferences and opportunity costs of education using data on school enrollments across a sample of households from…

l Uttar Pradesh and Bihar. Using such a model, they answer questions about how changing the fees or the cost of transportation would impact enrollment in schools itself and the relative shares of private and public sector schools. And they are able to shed insight on the subsidy question. First, school enrolment is highly sensitive to distance from home; and especially so for girls. A km of extra travel distance dramatically reduces private school enrolment; from 28.4% to 24% for boys and from 22.5% to 18% for girls in lower primary schools. For older kids in upper primary schools, the effect is a bit smaller, but not by much. Private school enrolment is sensitive to fees. Doubling fees from Rs. 25 per month (about 60 cents) to Rs. 50 (about $1.20) reduces private enrolment by 14%, but only 10% of the students leave for public school, 4% stop going to school. Surprisingly, providing transportation has comparable impact to doubling fees, but in the opposite direction; a bus service increases private enrollment by 16%. Interestingly, the bus service helps expand school enrolment, 13% of the gain is from expanded enrolment, rather than substitution away from government schools. And the gains are substantially larger for girls.—reflecting greater safety concerns for girls in the culture. All of these get us back to the original question: should the government subsidize private schools, given how sensitive school enrollment is to distance traveled? With a subsidy, the number of private schools will increase, potentially leading to greater student enrolment. Using some back of the envelope calculations, the authors show that a Rs. 3000 subsidy per month (about $80) will increase the number of private primary schools in rural areas by close to 50% and increase total school enrolment by 6.5%. Secondary schools of course, require a much larger subsidy. A subsidy of Rs. 28000 ($700) per month can double the number of schools and expand school enrolment by about 14%. Given the disastrous long-term consequences for the Indian economy from poorly educated and uneducated students and the potential benefit from even very small private school subsidies.



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