Measuring the Cost of Misallocation of Investment in Education

This paper analyzes the welfare loss associated with the misallocation of resources within the education sector. After a theoretical discussion of the different methods of measuring this misallocation cost and the problems involved, estimates for 17 countries are presented. In contrast to the typically negligible estimates yielded by previous such studies of other sectors of the economy, it was found that the potential gain from improving the allocation of resources in education may be expected to be substantial, often reaching the size of the education budget itself.