Economics of Education. The Need to go Beyond Human Capital Theory and Production-Function Analysis

Abstract

Human capital theory takes for granted that an individual's demand of education will automatically be transformed into real human capital: there is no supply constraint or, said differently, educational systems can be assimilated to 'neutral' black boxes mechanically transforming input into output. This optimistic view of human capital production was rapidly abandoned. In the late 1960s some economists began to revise the assumption that the black box's functioning was neutral with regard to human capital production. Supply-side economics of education appeared first under the form of production-function analysis. It was initially believed that the information delivered by such input/output approach would help policy makers and administrators choose the most productive 'mix' of inputs. But the major conclusion of this line of research is that there is apparently no clear and undeniable relation between both expenditure per student and the specific resources they can buy (teachers' degrees and experience, smaller student-teacher ratios) on the one hand, and student achievement on the other hand. This probably means that further conceptual development is necessary to overcome the current analytical - and also political - deadlock. This paper argues that one promising way consists of introducing organisational assets as well as non-monetary inputs into the production function paradigm.