The Role of Markets and Government in Human-Capital Building and Education: A Research Program in Institutional Economics

This paper asks what role the state should play in education. Institutional economics has not entered this debate. To change this, the paper tries to give an outline for further research. First, it gives reasons why pure market solutions will probably fail. Then three basic questions are analyzed: (1) Should there be compulsory schooling? (2) Should the state finance schools? (3) Should schools be subjected to special regulations? To answer these questions, the educational process is divided into three levels. It is argued that the role of government should decrease with rising level.