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Costs Representing the Supply of Education

Private costs both direct and indirect costs are affected by public policies, the incidence of child labor and labor market conditions. If there is a high demand for child labor in the labor market, opportunity costs of keeping children at school will be high for poor families. Gender differences in costs and benefits may also arise depending on the role of women in the economy, society and the family.
The economic rate of returns to schooling can be derived from the correlation between earnings and years of schooling (usually controlling for work experience) from cross-sectional data. This gives an estimate of the private rate of return to the time spent. Social rate of return to investment in schooling are calculated through an adjustment of other costs. On the social benefit side positive externalities of education have to be adjusted too. It is the private rate of return that is important from poverty reduction point of view.

Since decisions related to investment in education are made in the household, the standard neoclassical household models with common preference or bargaining over allocation of resources may be used. Bargaining within the household may be affected by wife´s education and earnings possibilities (Schultz, 1999). Improved bargaining position of educated women has been found to have strong effect on the investment of human capital especially for girls (Schultz, 2001). Higher participation rates in school, especially of girls, are positively associated with mother´s schooling. Households are assumed to maximize household preferences (an outcome of bargaining) subject to the full- income constraints that include expenditures with money cost and time cost. Poor households are likely to have low demand for education mainly because of high costs of education and low benefits arising from factors like discrimination in the labor market and low motivation for schooling.