THE CONSUMPTION AND INVESTMENT ASPECTS OF THE DEMAND FOR EDUCATION.

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    • Abstract:
      This paper proposes a theoretical analysis of the demand for full-time education in which nonmonetary as well as monetary benefits enter explicitly. The model used to analyze the effects of changes in the present values of the anticipated streams of monetary and nonmonetary benefits on the demand for full-time education is a constrained utility maximization model consisting of the utility function. For example, suppose that for all levels of full-time education the present value of the anticipated life-time stream of net income changes by some constant amount. In terms of the investment theoretic analysis of the demand for full-time education, there will be no change in the amount of education demanded since the maximum present value of the anticipated life-time stream of net income still occurs at the same level of education. However, a higher level of satisfaction can be achieved by trading off some of the increase in the present value of the anticipated life-time stream of net income for an increase in the present value of the anticipated life-time stream of nonmonetary benefits. An interesting application of the marginal productivity effect is in the analysis of how an increase in the progressivity of the personal income tax structure affects the demand for education.