1 Chapter 2- The demand for education

In this chapter we analyse the reasons why people go to school. Our initial answer will call into play the notion of functioning by Nobel laureate Amartya Sen. We will then move to the theory of human capital by another Nobel laureate, Gary Becker, who portrays education as investment in human capital. Other alternative approaches, based on the idea of signalling, screening or convenient human traits, will be reviewed in chapter 6. The human capital approach derives from the assumption that perfect financial markets exist. When we remove this assumption, family then family income distribution becomes a limiting factor, and income inequality persistence arises as an equilibrium outcome. 1. Education as creation of minimal capabilities When discussing equality and justice, we typically consider the distribution of economic resources such as income and wealth. Amartya Sen has, however, repeatedly drawn our attention to the fact that mere ownership does not necessarily imply an increase in utility, since a person might be unable to benefit from the additional economic resources. Yet this may not depend so much on individual heterogeneity1 as on individual capability to transform resources into behaviours so as to function adequately.2 Being able to read, calculate and process information can be thought as a functioning necessary for conducting a normal social life (namely, appearing in public without shame). To convince the reader, here is a list o