A positive externality such public education subsidies is a benefit that is enjoyed by learners while the persons that enjoy such forms of externalities are considered to be free riders. Unlike the negative externalities that must be discouraged, positive externalities should be allowed or encouraged (Fogarty " Sagerer, 2016). Subsidies involve the state in paying part of the cost of public education; this is meant to reduce the price of goods and thereby encouraging consumption. At the present education is mainly paid for and administered by state or non-profit making institutions. Subsidizing education has been an indiscriminate responsibility of the state.
The Expected Social Benefits
Education increases the civic engagement and contributes to a democratic and stable society. In addition, educated workforce is essential for the adoption and creation of new technology. In the free market, there tends to be inequality in opportunity, wealth, and income. The government intervention in education is critical to ensure that all members of the society can benefit.
Subsidy of Public Education
The subsidies are at point P0-P2. As a result of the government intervention the supply curve shifts to S2 while the price declines from the original point P1 to a new price P2. Because of the reduced prices of education, it means that more people will consume it implying that the quantity will increase from the initial quantity Q1 to a new Quantity Q2. The output (Q2) is social efficient: because at this point: the social marginal benefit and costs are equivalent. The learner in the new environment pays socially efficient prices that entails external benefits. In the long run because of the government intervention so many people end up consuming commodities.
Why Government Intervention Is Important
The public intervention in the higher serves the importance of reducing inequality. In a country where higher education is free, students from poor backgrounds have an opportunity of benefiting from education just like the rich families. Given the high costs of providing higher education or limited government funding implies that a few students have to pay a higher cost implying that only few can benefit.
A successful country should have a workforce that is capable of operating institutions at a level where it can compete with other institution. To ensure that the nation has enough manpower to fill the job positions available the state attempts to incentivize training through tax write-offs and breaks as well as subsidization. Subsidies makes the education more affordable and can be accessed by all members of the society. The skills and knowledge of workers available in the supply of labor are critical in deterring economic and business growth. The nations with a significant supply of skilled, labor that is brought in through vocational training and formal education contribute immensely to economic growth.
The past data indicates that the price of public education has been rising. The prices in the private universities increased rapidly by 26 percent (Feng " Jia, 2017). The price of the community colleges rose by 29 percent. Inflation has been one of the reasons for the rising cost. The inflation accounts for about two percent of the yearly cost of the college education. The rising nominal cost can discourage certain students from enrolling. In economic prices tend to affect demand. With more people enrolling in schools, the colleges are using that as an opportunity to increase the prices. The educational institutions are on board with this rise as it allows for their programs, facilities, staff salaries, and base. Colleges tend to increase and maintain quality at the expense of the tuition rise by spending more rather reallocating funds or reducing costs. The government tries to intervene using subdues as a way of reducing costs so that more persons can benefit from the system.
Costs of Government Subsidizing Education
When the state subsidizes certain education it can cause the consumption to rise because of the reduced cost. While this can help learners initially because of the reduced price, it can lead to future shortages because the learning institution will have trouble in tackling sudden increases in the demand (Bhakra " Sadler, 2016). This can be quite unfortunate in the long run because students cannot find learning spaces in the available institutions because of shortages and overconsumption.
One of the greatest disadvantages of the state's involvement in education by subsidizing is that it increases the amount of taxation. The government can't give money to people, businesses, and industries without first taxing citizens. The government subsidies of education come with a hidden cost of taxation. In the long run, the state will be forced to pay higher taxes in order to fund such programs.
Subsidizing public education can create unfair competition with a private institution. Such institutions can be driven out of the market because many learners will opt to the public institutions because of the reduced cost. The private institutions rely on alumni donations, alumni, and tuition for a good portion of their funding, competition with the subsidized institutions can force such institution to close. Such a move can limit the number of job opportunities available for the support staff and professors and could a result in the death of many fantastic programs. In such a situation the private institutions will be forced to lower their fees to compete with the public institutions or be driven out of the market. In addition, although some people such as the poor can benefit from the reduced cost of education, it is extremely difficult to measure the success of such subsidies to make a decision about the future implementation.
Unintended Consequences of Subsidies
Government intervention by subsidizing education can be more costly than the private solution, in such a situation the solutions that are implemented by the state are determined by political consideration rather than by social welfare (Bhakra " Sadler, 2016). If the level of education is determined by a political process is bound to fail in the long run. In addition, the state doesn't know how much subsidies to provide and which individuals to subsidize in order to maximize welfare. The data that is necessary to determine how much to subsidize and the individual to subsidize is not readily available or it can be quite costly.
Recommend Changes
The positive externality is the most frequently cited reason the state gets involved in education by providing subsidies. However, the government should be cautious when providing subsidies to ensure that they do not interfere with the private sector. In this case, it is important that the state collects adequate information on the individuals or institutions that are supposed to benefit from subsidies. The government shouldn't interfere with the forces of demand and supply that control this sector.
References
Bhaskar, D., " Sadler, E. (2016). Resource Allocation with Positive Externalities. SSRN Electronic Journal. doi: 10.2139/ssrn.2853085
Feng, H., " Jia, Y. (2017). The Positive Externalities of CEO Delta. SSRN Electronic Journal. doi: 10.2139/ssrn.3019717
Fogarty, J., " Sagerer, S. (2016). Exploration externalities and government subsidies: The return to government. Resources Policy, 47, 78-86. doi: 10.1016/j.resourpol.2016.01.002
