2003Posted: August 19, 2003
Spring, Vol. 3, No. 4
Empirical & Theoretical Articles
Examining the Credibility of Inflation forecasts:
An Application of Co-Integration Techniques
- Dipak Ghosh and Swarna Dutt
Markowitz Portfolio Analysis:
The Demonstration Portfolio Problem
- Gary Richardson
Stock Trading in Class: A Multimedia Game
- Nancy Burnett
Summer, Vol. 4, No. 1
Empirical & Theoretical Articles
Advances in Technology and Global Welfare
- Shokoofeh Fazel
Student Evaluations of Teaching:
Does Pedagogy Matter?
- Howard H. Cochran, Jr., Gary L. Hodgin, and Joachim Zietz
Teaching Money and Banking Online:
A Comparison with the Traditional Approach
- Alejandro Gallegos
Comments on the Paper, “A Cost-Benefit Analysis of Higher Education in Tennessee” presented in the Journal of Economic Educators, 2001
- Brian W. Sloboda
This study, like the Bluestone analysis, provides for further analysis of the economic impacts of colleges / universities. In these types of analyses, the reality is being compared to a hypothetical but a feasible alternative. Typically, in these types of analyses, the goal of the researcher is to determine which of the alternatives will ultimately be feasible. For public colleges / universities, these institutions rely heavily on the legislative subsidies, which typically fluctuate from year to year.
This analysis as well as the Bluestone analysis provides an approach that is grounded in the use of the cost-benefit approach. Also the main premise of this approach as applied to public colleges and universities is that economic resources are scarce and have alternatives. Put in another way, would society be better off if those resources allocated to the public colleges and universities were used in a different way? This becomes a question presented to the state legislators each year when they must determine the allocation of these resources among all the competing sectors. The latter becomes more problematic if the state is confronted with less tax revenue, which causes the legislators to shift their priorities without assessing the benefit-costs of such shifts.
The goal of a private or public university is an investment in the development of human capital. Given this human capital, the alumni will be able to increase productivity and receive increased incomes for this increase in skill. Thus, as the alumni receive greater income, this increase in income provides greater tax revenue to the state treasury and the federal treasury. That is, a measure of increased productivity is determined partly by their increased incomes. If the students pay the full costs of their education, it becomes rather easy to determine if the education received was deemed effective. However, public colleges and universities deliver an education below costs, so the measurement of effectiveness of an education becomes less clear.
In addition, another complication that evolves from an education is that this education may be primarily oriented towards an improved quality of life or provide positive spillover effects to society: lower crime rates, less welfare dependents, and so forth. Consequently, these positive spillover effects cannot be fully measured by the income generated by these former students. However, the present analysis as well as the analysis of Bluestone does not incorporate these effects in the benefits of acquiring this higher education. In other words, these analyses only show the benefits for higher education as an investment. It would be a daunting task to illustrate in this paper such benefits by incorporating these spillover effects. At the very least, the present analysis should address these issues in setting the scope of the analysis.
The Bluestone analysis unlike the present analysis provides a generalization of earnings potential without regard for the wage differential that exists between the genders. This wage differential is significant since the earnings gap between men and women is fairly large. Also the measure of cost-benefit presented in the current analysis is rather crude. What does this measure show precisely? Recall that the basic premise of cost-benefit analysis is the comparison of the current choice with some other alternative(s).
The issue at stake has to do with public colleges / universities determining the size of their annual appropriations. If the benefits of an education are fully captured by the students, would it be more beneficial for these students to pay full costs of their education rather than the legislators providing generous appropriations to the public colleges and universities? Rather than focusing on the actual or net benefits of an education, it may become more beneficial to assess an education on the basis of the positive externalities that are generated. The assessment of these positive externalities becomes another issue, and a line of demarcation between subsidization by the legislators and generation of positive externalities becomes important.