Economics of Education

Module code: EC3044
Module co-ordinators: Dr Francisco Martinez Mora and Dr Tania Oliveria

Economists have been investigating economic issues related to education since the 1960s, using theoretical models and testing predictions empirically. Provision of education is a major priority of public sector activity all over the world. Over time education has been defined as a public good, a private consumption good, an investment good and a screening device. Education is a typical example of a publicly provided good. The public intervention has been justified on three levels: externalities, capital market imperfections and redistribution.

Economics from several fields (public economics, labour economics, macroeconomics, industrial organisation) can be applied to questions related to education. In this module we will investigate the policy implications of the economic analysis and assess the effectiveness of different education policies.

Topics covered

  • Basic theory of individual investment in education and training, its implications and extensions and how it can provide a basis for empirical investigation.
  • Evidence on the returns to human capital; how these estimates can be biased and how authors have attempted to control for sources of bias, like ability.
  • Components of the education production function; peer group effects and their relevance for the production of education.
  • Relation between school resources and student performance, with special reference to the debate about class size.
  • How public and private educational institutions interact in both compulsory and higher education; how these interactions affect school quality, political support for education and the distribution of educational benefits.
  • Different aspects to be considered in the design of higher education finance policies' their relevance for equity and efficiency goals.
  • Main equity and efficiency arguments in favour or against the school vouchers policy proposal.
  • Link between education and inequality; the possible role of education as a redistribution tool.


  • 20 one-hour lectures
  • 5 one-hour seminars


  • Exam, 90 minutes (80%)
  • Coursework (20%)