We construct new distribution sensitive measures of literacy, by extending the analysis along the lines of the measure proposed by Basu and Foster [Econ. J. 108 (1998) 1733]. We extend the Basu and Foster measure in two ways. First, we characterize a measure where externality depends on the number of literates in the household. Second, we develop a measure where the externality depends on the number of literates-per-illiterate in a household. In both cases, we introduce new axioms that allow us to measure the externality better. © 2003 Elsevier B.V. All rights reserved.