Benchmarking the effective literacy rate

Several authors have identified an externality accruing to proximate illiterates, that is, illiterate people with access to a literate person. The standard literacy rate ignores this externality; measures of effective   literacy are sensitive to it. Nearly all measures of effective literacy appearing in the literature are greater than or equal to RR. In fact, the best known of these, the Basu–Foster measure L∗L∗, is strictly greater in virtually every case (see Basu and Foster [Basu, Kaushik, Foster, James, 1998. On measuring literacy. Economic Journal 108 (451), 1733–1749]). Although the inequality L∗≥RL∗≥R is an unintended consequence of their construction, it amounts to setting a benchmark for the effective literacy rate. This note examines Basu and Foster’s framework and offers an alternative benchmark.