This paper examines the literature in the growing field of education and inequality that is concerned with how individuals sort, and the consequences of this knowledge for the accumulation of human capital, equity, efficiency, and welfare. It argues that how individuals sort across neighborhoods, schools, and households (spouses) can have important consequences for the acquisition of human capital and inequality. It discusses the implications of different education finance systems for sorting and analyses the efficiency and welfare properties of these in static and dynamic frameworks. There is no overarching theoretical framework in the field of sorting. Rather, different models illuminate some of the particular interactions among variables. This paper discusses a few models in depth and presents complex quantitative analyses of some of them. Findings include the following: (1) For a sufficiently patient social planner, the state education system will be preferred; (2) for a sufficiently powerful exam technology, the exam mechanism will always dominate the market mechanism for both aggregate production and consumption; and (3) countries with greater inequality exhibit greater sorting at the household level, and fertility differentials are increasing in inequality. The paper concludes that much work remains to be done in the areas discussed. (Contains 69 references.) (WFA)