Education, Utilitarianism, and Equality of Opportunity

We analyze in this paper the impact of different policies on the investment of the families in the education of their children. Families make decisions on the level of human capital of their offsprings regarding the future income that this capital entails (under the assumption that higher education levels yield higher expected income). The families' optimal investment in education depends on their preferences (summarized by their time discount and risk aversion parameters) and their circumstances (initial wealth, parents' education, and children' natural abilities). The public authority designs a balanced tax/subsidy scheme in order to maximize aggregate welfare. We compare the case of a purely utilitarian planner with one that cares about the equality of opportunity