ABSTRACT
The importance of literacy in the process of economic development of a society is well recognised. The standard measure of literacy of a society is the percentage of literates in the adult population, called the literacy rate. This measure has been the subject of careful scrutiny in recent years. Basu and Foster (1998) have argued that literates in a household provide a positive externality to the illiterates in that household. Thus, an illiterate person in a household which has some literate person, is effectively more literate than an illiterate person in a household which has no literate person. Consequently, some account needs to be taken of this externality in capturing the effective literacy of the household.
