The band marches on... but with fewer resources

Consumers have split preferences for education between the types of education services that they would like to experience and the types of educational services that they want for others using the system. The primary or secondary educational institution acts as a complete agent to provide services in an environment where a smaller group of taxpayers actually funds the institution. The taxpaying group has split preferences for the funding of these services. The budget is endogenous and depends on the choices of educational services offered by the institution. The focus is, therefore, on the division of the budget of the institution between knowledge-based activities and spillover activities. Educational institutions emphasize the knowledge-based activities and the spillover activities are left underfunded.