Do Children Create an Externality in the Provision of Public Education?

Abstract

In 1972, Oakland presented a formal theory of congestible public goods. One implication of the Oakland model is that the marginal benefit of consuming a congestible public good, like public education, depends on both the level of congestion and the capacity of provision. This study uses a county-level panel data set (1967-1987), in the context of the Oakland model, to examine the effect of a “children externality” on the consumption of public education, a congestible public good. Viewed as a congestion cost, one would expect the number of school children in a community (i.e., the children externality) to contribute negatively to the service provision of public education, all else equal. Because this children externality, or consumption sharing of the public good, can be mitigated or eliminated by expanding the capacity, tax limits imposed on a local community’s ability to expand this capacity will further add to an already congested facility. Anticipating the results, the authors demonstrate that both the children externality and limits to expanding capacity lead to significantly lower per pupil expenditures on local public education.