INTRODUCTION

The papers by Raquel Fernández and Ken Wolpin form an excellent overview of important theoretical and empirical issues relevant for the analysis of policies designed to promote the development of human capital. However, their angle is quite different, with the former concentrating on sorting and the funding of schools (public vs. private) and the latter discussing ways of specifying empirical models that would allow a systematic evaluation of policies toward human capital development.

The paper by Raquel Fernández focuses on how best to finance education in view of the fact that individuals may sort on income, ability, or both. She seeks to establish a framework for analyzing the basic question of whether publicly- or privately-funded education is best from a welfare point of view. She discusses the impact of these different designs on efficiency and on inequality under different assumptions about complementarities in the human capital and goods production function as well as under the presence of liquidity constraints and sorting restrictions. In her context, sorting may not lead to efficient outcomes. She examines conditions under which public education may lead to improvements in efficiency.

The paper by Ken Wolpin emphasizes the importance of clearly specifying the framework within which empirical analysis is undertaken. He shows that in the absence of a well-defined framework, policy conclusions can be confusing and misleading. He then discusses empirical models of wages and education choice under different assumptions about the labor market.