Question 5: Education Policies Consider a household in Bangladesh with one child

Question

Question 5: Education Policies

Consider a household in Bangladesh with one child. Suppose the present value of the benefit to the household of sending their child to primary school for 5 years is $10,000. Suppose the direct cost of primary school is zero (primary schooling is free), but parents face an opportunity cost, i.e. the foregone income (if the child is attending school instead of working for a wage); suppose this forgone income is 1000 every year. Assume the interest rate is 10%.

(a) Calculate the present value of cost of attending primary school.

(b) What is the net present value of sending the child to primary school?

(c) Now suppose a conditional cash transfer program guarantees a transfer of $50 per month to the household if they send their child to school.

        (i) What is the total transfer the household receives annually if the child goes to school for the whole year.

        (ii) Calculate the present value of the total amount the household receives from the government transfer program if the child attends primary school for five years.

        (iii) Now re-calculate the net present value of attending primary school.

        (iv) How can the cash transfer program increase the likelihood that households will invest in their children’s education?

(d) Define corruption. How can corrupt officials affect the quality of education provision?

(e) How can we improve the incentives for households to invest in education by reducing corruption?

Explanation / Answer

a.

3790

NPV=10000-3790=6210

d.

National education systems across the developing world are particularly

vulnerable to pervasive corruption, largely for three reasons. (1) As one of the few

governmental agencies with high visibility representation all the way down to the

community level, education is an attractive structure for patronage and manipulation of

local sentiment. (2) Decisions perceived to have significant consequences for people’s

lives are made by “gatekeepers” who control decisions at each of those levels (e.g.,

district education officers, headmasters, teachers). (3) A considerable amount of

education funds are spent in small amounts, across many scattered sites, most of which

have weak accounting and monitoring systems. While there are ample examples of

large-scale corruption within central education ministries, this paper argues that the

most serious consequences arise from the pervasive, petty corruption that permeates

the day-to-day transactions at the classroom, school, and district levels. The real

damage to a society occurs when entire generations of youth are

mis-educated – by

example -- to believe that personal success comes not through merit and hard work, but

through favoritism, bribery, and fraud. Widespread petty corruption breaks the link

between personal effort and anticipation of reward. This, in turn, limits the economic

and social development well beyond the immediate corruption. Such lessons have the

potential to undermine civil society well into the future.

Year Income forgone pv factor at 10% present value of cash outflow 1 1000 0.909 909 2 1000 0.826 826 3 1000 0.751 751 4 1000 0.683 683 5 1000 0.621 621

3790

NPV=10000-3790=6210

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