Lecture to the memory of Alfred Nobel, December 11, 1971

Recent attention to education in the United States represents the merger of concern about efficiency of the educational system and concern about the distribution of educational services, particularly along racial and ethnic lines. However, there is very little guidance on how to satisfy any efficiency or distributional goals through public policy because extremely little is known about the relationship between inputs-particularly inputs available for public policy--and outputs of the educational process. Educational research has been slow in providing definitive answers to public policy questions for several understandable reasons: the subject of the educational process is extremely complex, especially as regards the physiological and psychological aspects; any theoretical development of a learning theory amenable to analysis for policy purposes is absent; and the required data traditionally have not been collected. Previous analyses have yielded some suggestive beginnings, and have provided insights into how the analysis should proceed. This analysis represents a next step of statistical inquiry into the educational process from a public policy point of view. Three fundamental educational policy questions are addressed: (1) do teachers count? (2) are schools operated efficiently now? (3) what characteristics of teachers and classrooms are important? Past studies have given ambiguous answers to these questions, largely due to inadequate data. Specifically, no data set which supplies accurate historical information on educational inputs at an individual level has been available. This study attempts to provide more conclusive answers by remedying the most glaring data problems for a set of students (third graders) in one school district.

Publisher Summary This chapter discusses the private and social value of information along with the reward of inventive activity. The individual is always fully acquainted with the supply–demand offers of all potential traders, and an equilibrium integrating all individuals' supply-demand offers is attained instantaneously. Individuals are unsure only about the size of their own commodity endowments and/or about the returns attainable from their own productive investments. They are subject to technological uncertainty rather than market uncertainty. The main reason is that information, viewed as a product, is only imperfectly appropriable by its discoverer. The standard literature on the economics of research and invention argues that there tends to be private underinvestment in inventive activity mainly because of the imperfect appropriability of knowledge. The contention made is that even with a patent system, the inventor can only hope to capture some fraction of the technological benefits because of his discovery. Even though practical considerations limit the effective scale and consequent impact of speculation and/or resale, the gains thus achievable eliminate any a priori anticipation of underinvestment in the generation of new technological knowledge.

Economics today rides the crest of intellectual respectability and popular acclaim. The serious attention with which our pronouncements are received by the general public, hard-bitten politicians, and even skeptical businessmen is second only to that which was given to physicists and space experts a few years ago when the round trip to the moon seemed to be our only truly national goal. The flow of learned articles, monographs, and text-books is swelling like a tidal wave; Eco-nometrica, the leading journal in the field of mathematical economics, has just stepped up its publication schedule from