The analysis of investments in health and education is unified in the human
capital approach. Human capital is the term economists often use for education,
health, and other human capacities that can raise productivity when increased.
An analogy is made to conventional investments in physical capital:
After an initial investment is made, a stream of higher future income can be
generated from both expansion of education and improvements in health. As
a result, a rate of return can be deduced and compared with returns to other
investments. This is done by estimating the present discounted value of the increased
income stream made possible by these investments and then comparing
it with their direct and indirect costs. Of course, health and education also
contribute directly to well-being. For example, education increases empowerment
and autonomy in major matters in life, such as capacity for civic engagement,
making decisions concerning one’s own health care, and freedom to
choose one’s own spouse over arranged marriage.18 But the basic human
capital approach focuses on their indirect ability to increase well-being by