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Submitted by Shanta on

Steven, While I welcome comments on this blog post, I wish you had read the post more carefully, because I think there is quite a lot of common ground. First, just because something is a private good, it doesn't follow that a private market will provide it efficiently. There can be a lot of distortions in the market for private goods. That is why we have, for instance, safety inspection of restaurants. Secondly, I too believe there are externalities associated with education, but there are also huge private benefits (as reflected by the behavior of poor people, who bypass free public schools and send their children to fee-paying private schools). In a situation where a good has both private benefits and an externality, economic theory tells us that the solution is to subsidize the good (where the size of the subsidy is the difference between social and private marginal benefits) and have the private sector provide it. This is what several countries have tried to do with voucher schemes. But even in this case, we should study and regulate the private market that provides the service because, as mentioned above, it can be subject to distortions. Finally, rather than a throwaway comment, equity is central to this argument. Poor people are the ones who are losing out from the publicly-funded, publicly-provided education system (the rich are either educating their kids in private schools, or capturing the rents from free tertiary education). We have to make the system work for poor people, which is why I favor giving them the means and ability to hold service providers accountable. Shanta