Individuals invest in education because of expected private benefits, such as higher earnings. But such investments can affect the productivity of others as well as the productivity of the person making the investment. For example, the collaborative effort of many educated individuals in a common enterprise may lead to a higher sustained rate of innovation in the design of products. Such knowledge spillovers provide one justification for subsidizing investment in education.

This article appeared in the January/February 1995 edition of Business Review.

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