What Educational Production Functions Really Show : A Positive Theory of Education Spending

Abstract

The existing empirical work on educational production functions provides powerful insights into a positive theory of the allocation of educational expenditures. An optimizing model of expenditure allocations predicts that input use should be chosen so that the marginal product per dollar of each input is equalized. In decided contrast, the existing literature shows that the marginal product per dollar of inputs not directly valued by teachers are 10 to 100 times higher than that of inputs valued by teachers. This implies that inputs which provide direct benefits to educators (like teacher wages) are vastly over-used relative to inputs that contribute directly (but only) to educational output (like books or instructional materials). One class of positive models of expenditures consistent with this empirical finding invoke a very high ratio of teacher to parental (or student) influence in the determination of expenditures. This implies that in some circumstances educational reforms that shift the relative strengths of parents versus teachers in the allocation of expenditures can lead to enormous gains in the cost effectiveness of schools.