Public Policy for Efficient Education

We study the role of public policy in promoting efficiency in human capital accumulation. Agents accumulate human capital by allocating time to home study and school attendance. The return to time spent in school is subject to congestion. The individual also faces an aggregate externality in skill accumulation. We find that a tuition fee combined with personal stipends can correct the resulting distortions by partly shifting educational effort from schools and universities to noninstitutional forms of learning, such as home study. The dynamic effects of education policy as well as their welfare implications are also calculated in the paper