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How to Subsidize Education and Achieve Voluntary Integration: An Analysis of Voucher Systems

Author

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  • Benjamin Eden

    (Bank of Israel)

Abstract

Reforms in education is currently a hot topic . Many suggestions for reform use elements of Friedman's voucher scheme. According to this scheme parents get a transfer of money (vouchers) from the government, which they must spend on education. But they are free to choose the type of education they want for their children . In particular, they can choose among alternative schools. Surprisingly, the ideas sketched by Friedman about thirty years ago were not examined in the rigorous general equilibrium tools which are now available. Here I attempt to fill this gap. It is argued that vouchers are not sufficient for successful decentralization: To achieve the socially optimal amounts of educational outputs the government must pay schools for the educational outputs in addition to payments for the employment of students. Once this achievement based system (ABS) is in place, there is no need to worry about school integration: the optimal amount of integration will arise voluntarily, because in the ABS schools face the correct shadow wages for the employment of students.

Suggested Citation

  • Benjamin Eden, 1993. "How to Subsidize Education and Achieve Voluntary Integration: An Analysis of Voucher Systems," Bank of Israel Working Papers 1993.01, Bank of Israel.
    • Handle: RePEc:boi:wpaper:1993.01
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    References listed on IDEAS

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    1. Arnott, Richard & Rowse, John, 1987. "Peer group effects and educational attainment," Journal of Public Economics, Elsevier, vol. 32(3), pages 287-305, April.
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    3. Levin, Henry M., 1991. "The economics of educational choice," Economics of Education Review, Elsevier, vol. 10(2), pages 137-158, June.
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    5. Benabou, R., 1991. "Location, Education, and Production," Working papers 582, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July.
    7. Roland Benabou, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 619-652.
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    2. Dennis Epple & Richard Romano, 2008. "Educational Vouchers And Cream Skimming," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1395-1435, November.

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