2.1.3 Educational investment and
externalities
The existence of externalities associated with investment in education, which extend
beyond the benefits to individuals, has already been highlighted in the earlier discussion
of the benefits of education for girls and women. These are a subset of a range of
externalities that have been identified by McMahon (1987:133) and many others. This
is an extensive field and one at an early stage where much of the force of the arguments
exists at a qualitative level. McMahon's classification draws attention to external
benefits to society at large, the local community, and spill overs to other communities,
though it must be remembered that its perspective is essentially that of a developed
country with substantial welfare benefits and educational services.
The first category includes a range of effects all of which are difficult to demonstrate
but most of which are widely recognised. Education is attributed with benefits in
creating more efficient markets with more sophisticated producers and consumers better
able to process information and adapt to technological change. That this should be
theoretically so is almost self evident if education does enhance cognitive skills.
Whether the effects are more or less than the other factors that constrain the
development of markets and limit access to information and new technologies is more
difficult to judge.
Education is also argued to have benefits for civil society and public service. More
educated citizens may be more likely to demand and exercise a democratic franchise for
the collective benefit, they may be more likely to take part in public service activities
and voluntary work, be more employable and they may be less likely to display
criminality. To the extent that more educated citizens maintain their health status at a
higher level, the costs of publicly financed health care may be reduced over what they
would otherwise be.
The contrary is of course possible. More education may increase the demand for public
health services despite reductions in morbidity. Since prolonged unemployment is often
negatively correlated with higher levels of education it may also be that the public costs
of unemployment could reduce with higher levels of education. Equally though it is
possible that more education would result in a weakening of the employment-
educational level link resulting in higher public costs for unemployment. In most
societies the more educated display less criminality in terms of offences warranting
imprisonment. Though more educated criminals may be more adept at evading
prosecution and specialise in different types of crime, only a confirmed pessimist would
argue that this was a dominant effect. Spill over benefits occur when groups other than
those paying the costs obtain benefits from educational investment. This may occur