Category: Education

Do economists understand the concept of opportunity cost?

by  Tyler Cowen in

Remember those old debates on MR as to what opportunity cost is exactly supposed to mean?  Joel Potter and Shane Sanders have an interesting follow-up paper:

Abstract: Ferraro and Taylor (2005) asked 199 professional economists a multiple-choice question about opportunity cost.  Given that only 21.6 percent answered “correctly,” they conclude that professional understanding of the concept is “dismal.” We challenge this critique of the profession. Specifically, we allow for alternative opportunity cost accounting methodologies—one of which is derived from the term’s definition as found in Ferraro and Taylor— and rely on the conventional relationship between willingness to pay and substitute goods to demonstrate that every answer to the multiple-choice question is defensible. The Ferraro and Taylor survey question suggests difficulties in framing an opportunity cost accounting question, as well as a lack of coordination in opportunity cost accounting methodology.  In scope and logic, we conclude that the survey question does not, however, succeed in measuring professional understanding of opportunity cost.  A discussion follows as to the concept’s appropriate role in the classroom.

What kinds of movie stars marry each other?

by  Tyler Cowen in

From Gustaf Bruze:

Marital sorting on education is an important but poorly understood source of inequality. This paper analyzes a group of men and women who do not meet their spouses in school, are not sorted by education in the workplace, and whose earnings are not correlated with their years of education. Nevertheless, movie actors marry spouses with an education similar to their own. These findings suggest that male and female preferences alone induce considerable sorting on education in marriage and that men and women have very strong preferences for nonfinancial partner traits correlated with years of education.

Hat tip goes to Steve Sailer.  And here is another paper by Bruze:

US middle aged men and women are earning in the order of 30 percent of their return to schooling through improved marital outcomes.

Might schooling raise IQ?

by  Tyler Cowen in

Children who have more schooling may see their IQ improve, Norwegian researchers have found.

Although time spent in school has been linked with IQ, earlier studies did not rule out the possibility that people with higher IQs might simply be likelier to get more education than others, the researchers noted.

Now, however, “there is good evidence to support the notion that schooling does make you ‘smarter’ in some general relevant way as measured by IQ tests,” said study author Taryn Galloway, a researcher at Statistics Norway in Oslo.

Findings from the large-scale study appear in this week’s online edition of the Proceedings of the National Academy of Sciences.

…In 1955, Norway began extending compulsory middle school education by two years. Galloway and her colleague Christian Brinch, from the department of economics at the University of Oslo, analyzed how this additional schooling might affect IQ.

Using data on men born between 1950 and 1958, the researchers looked at the level of schooling by age 30. They also looked at IQ scores of the men when they were 19.

“The size of the effect was quite large,” she said. Comparing IQ scores before and after the education reform, the average increased by 0.6 points, which correlated with an increase in IQ of 3.7 points for an addition year of schooling, Galloway said.

The summary is here, the paper is here, and for the pointer I thank Michelle Dawson.

Why do universities have endowments?

by  Tyler Cowen in

Alan Gunn asks:

Why do universities (in the US and Britain only) have endowments, and should they? And why does no one but Henry Hansmann [pdf, eBook version here] write about this question?

Because they can.  Tax law doesn’t stop them, and why should a University President spend down the fund?  An ongoing high balance in the fund means prestige, a good ranking, and an ability to make credible commitments to quality faculty and quality programs.

Current donors know that their support will feed into something long-run and grand.  Rationally or not, it is less persuasive for an alumni donor to hear a pitch like “We will spend down the corpus.  Penn State will rise seventeen spots in the ratings, for twenty years, and then fade into obscurity.”  Many givers care predominantly about the “here and now,” but they donate to political campaigns, or benevolent charities, not universities.

Ultimately we need a theory of segmented giving, and how board structures of universities support such giving.  University board members benefit most from a prestigious school with a high endowment and other prestigious board members.  In general those boards will support accumulating the endowment, at least if the school has any chance for prestige in the first place.  Spending money within the university instead distributes those benefits to current faculty and students, rather than to the decision-makers over the endowment.

Note that while the most visible colleges and universities usually have large endowments, the median and modal schools have endowments very close to zero.  They have no chance of accumulating their way to substantial prestige benefits.

Alternatively, you could drop the fancy institutional economics and apply crude price theory.  Universities can borrow or otherwise raise money tax-free, and at g > r you should expect ongoing and rising accumulation.

It is striking how much the list of top U.S. universities does not change over the last century, albeit with some new entries from the west coast.  Among other things, that suggests there has been no fancy, expensive and effective new product that a school might invest in and run down its endowment for.  This might change in the next twenty years.  One can imagine a middling school running down its endowment to spend its way to leadership in on-line education.

I have never seen a good paper on which non-profits accumulate endowments and which do not, and how that difference functions as both cause and effect.  I would think, for instance, that the Heritage Foundation has a substantial endowment, but many think tanks do not.

Here is a new paper on university endowments (pdf), by Gilbert and Hrdlicka, asking whether endowments are invested in too risky a fashion.  It also raises the question of how well endowment practices will survive in a time with low rates of return.  Here is a 2008 dialogue on endowment reform.  Here is a 2009 law review piece on university endowments, it is a little slow to load.  Here is a TIAA-CREF perspective (pdf) on the investment committees for university endowments; they tend to be run by donors.  Here is a look at mandatory payout proposals.  Here is a good 2010 paper (pdf) on what happens when endowment values decline, it is called “Why I Lost My Secretary.”

Why is India so low in the Pisa rankings?

by  Tyler Cowen in

That is a request from J. and here is one recent story, with much more at the link:

A global study of learning standards in 74 countries has ranked India all but at the bottom, sounding a wake-up call for the country’s education system. China came out on top.

On this question, you can read a short Steve Sailer post, with comments attached.  Here are my (contrasting) observations:

1. A big chunk of India is still at the margin where malnutrition and malaria and other negatives matter for IQ.  Indian poverty is the most brutal I have seen, anywhere, including my two trips to sub-Saharan Africa or in my five trips to Haiti.  I don’t know if Pisa is testing those particular individuals, but it still doesn’t bode well for the broader distribution, if only through parental effects.

2. Significant swathes of Indian culture do not do a good job educating women or protecting their rights, even relative to some other very poor countries.  On educational tests the female students are at a marked disadvantage and that will drag down the average.

3. Countries taking the test for the first time may face a disadvantage in manipulating the results to their advantage; admittedly this cannot account for most of the poor performance.

4. Indian agricultural productivity is abysmal, in large part due to legal restrictions.  I discuss this in more detail in my next book An Economist Gets Lunch, due out in April.  That hurts the quality of life and opportunities for hundreds of millions of Indians, including of course children.

Overall, India has a lot of low-hanging fruit, but the country has further to go than many observers realize.  A quadrupling of per capita income would put them at what, the level of Thailand?

A meeting with the politeness expert?

by  Tyler Cowen in

From the always-excellent Laura Miller:

I confess that I have met Alford briefly and have found him polite, though not extraordinarily so. However, he reports that he volunteers as a New York City tour guide for visiting foreigners, always tries to strike up conversations with people standing alone at parties and considers himself responsible for the cleanliness of the toilet seat in any “single-stall facility” he emerges from, whether or not he splashed it himself. Such behavior does indeed seem above and beyond the ordinary call of manners and sets a standard worthy of a role model.

Yet all these points for gallantry are nearly wiped out in my book by Alford’s account of a game he is fond of playing in restaurants, called “Touch the Waiter.” The goal is to “see who at your table can touch the waiter the greatest number of times without the waiter’s figuring out you’re doing so.” Although he stipulates that this touching should never be lecherous or “directed at the sullen or the insecure” (the preferred target is an overly attentive or effusive waiter) it is nevertheless a creepy activity, a prank aimed at people whose livelihood depends on making themselves agreeable to patrons. Would it kill him to stop doing that?

They have transcribed my TEDx talk on stories

by  Tyler Cowen in

The link and pointer come from Ben Casnocha, here is one excerpt (emphasis is from Ben):

…as a general rule, we’re too inclined to tell the good vs. evil story. As a simple rule of thumb, just imagine every time you’re telling a good vs. evil story, you’re basically lowering your IQ by ten points or more. If you just adopt that as a kind of inner mental habit, it’s, in my view, one way to get a lot smarter pretty quickly. You don’t have to read any books. Just imagine yourself pressing a button every time you tell the good vs. evil story, and by pressing that button you’re lowering your IQ by ten points or more.

One interesting thing about cognitive biases – they’re the subject of so many books these days. There’s the Nudge book, the Sway book, the Blink book, like the one-title book, all about the ways in which we screw up. And there are so many ways, but what I find interesting is that none of these books identify what, to me, is the single, central, most important way we screw up, and that is, we tell ourselves too many stories, or we are too easily seduced by stories. And why don’t these books tell us that? It’s because the books themselves are all about stories. The more of these books you read, you’re learning about some of your biases, but you’re making some of your other biases essentially worse. So the books themselves are part of your cognitive bias. Often, people buy them as a kind of talisman, like “I bought this book. I won’t be Predictably Irrational.” It’s like people want to hear the worst, so psychologically, they can prepare for it or defend against it. It’s why there’s such a market for pessimism. But to think that buying the book gets you somewhere, that’s maybe the bigger fallacy. It’s just like the evidence that shows the most dangerous people are those that have been taught some financial literacy. They’re the ones who go out and make the worst mistakes. It’s the people that realize, “I don’t know anything at all,” that end up doing pretty well.

The talk itself is here on video.

Steven Landsburg Reviews Launching

by  Alex Tabarrok in

I am a big fan of Steven Landsburg’s books such as The Armchair Economist, More Sex is Safer Sex, and The Big Questions so Landsburg’s review of Launching the Innovation Renaissance was a personal thrill:

tabarrok

…This is a great book. It’s fast-paced, fun to read, informative as hell, and it gets everything right. At first I wished I’d written it— until I realized I could never have written it half so well.

…I wish everyone in the world would read this book. It only takes a couple of hours, and it is by far the best introduction I know of to the topic that towers above all others in its importance for the happiness of human beings everywhere, now and in the future, namely how to foster and accelerate the kinds of innovation that lead to economic growth. It will, I hope and expect, make you an enlightened advocate for enlightened policies. And it will arm you with a bundle of fun facts and anecdotes to share with your friends. This book might turn you into a proselytizer, but it will surely not turn you into a bore.

Buy Launching the Innovation Renaissance (Amzn, Nook, iTunes) and read it over the holidays!

That was then, this is now

by  Tyler Cowen in

In 2004, I wrote this to Alex:

The United States remains a strong and prosperous country. Our infrastructure, national culture of innovation, human capital, and economic dynamism are unparallelled in world history. The Bush fiscal policies, whatever their irresponsibilities, costs, and drawbacks, haven’t changed those core facts.

So I walked down to Alex’s office and issued him the following challenge: if you think I am wrong, sell all your stocks and go short on U.S. Treasury securities (and long on Brazil, if you wish!). With all the money you will make, you can buy out my half of this blog.

In my own defense, 2004 was the year when the available run of productivity statistics was looking the best, and there was no reason to think the 2001-2004 numbers were biased or misleading.

For the pointer I thank…Alex.

p.s. he didn’t do it.

Markets in everything but is there a core?

by  Tyler Cowen in

Ireland would need to get a significant reduction in its debt burden in order to get any referendum on new European budgetary rules passed, Minister of State for Finance Brian Hayes has said.

“The idea that we could have a referendum without that agreement, on a substantial re-arranging of our debt, wouldn’t fly,” Mr Hayes said in an interview with the Sunday Business Post .

“We would have to have that in place before we put the question (to the people) and that’s beginning to be understood at an EU level, which puts us in a stronger position,” he said.

Story here, via Economistmeg.