ABSTRACT
The economist's case for subsidising higher education is based on the familiar argument that the production of certain goods and services is subject to "market failures", which inhibit the attainment of Pareto optimality. Lower financial budgets will force higher education institutions to tap alternative public and private sources of funding, to find new ways of raising fees and to explore new systems of student aid. Public expenditure on higher education depends not only on the costs of instruction but also on the volume of direct aid to students. The case for the "privatisation" of post-compulsory education is easy to make on equity grounds. An economist would begin by distinguishing real from pecuniary externalities, and marginal from total externalities, concluding that the externalities of higher education, whatever they are, must ultimately take the form of raising the productivity and/or psychic satisfaction of Smith in sole consequence of the higher education of Jones.
