The Irrational Market for Higher Education

May 16, 2011

Kevin Carey of Education Sector weighs in on the “Is Higher Education a Bubble” discussion.  (Last week I linked to a contribution from the Economist’s Democracy in America blog.)

Two things stand out for me in his discussion.  First is this parsing of what a college education consumer is buying

Broadly speaking, college degrees can signal at least four distinct and important things:

1) The degree-holder has won an admissions tournament.

2) The degree-holder has undergone a process of acculturation in which he or she has learned how to think, talk, and act like those who have earned degrees before him or her.

3) The degree-holder has overcome a series of obstacles and completed a sequence of tasks necessary to earn a defined number of college credits.

4) The degree-holder has acquired a certain set of knowledge and skills.

He adds that Ivy League students are largely buying (1) and (2).

Later he adds this commentary about pricing in higher education:

[P]ricing in higher education is completely bizarre. Combine the fact that prices are generally disconnected from both cost on the front end and value in the marketplace with heavy internal functional cross-subsidization (teaching subsidizing scholarship, lower division subsidizing upper), large government subsidies, regulatory barriers to entry, and naive consumers operating in a confused, information-starved market, and there are massive opportunities for exploitation.

Massive opportunities for exploitation.  True, but sometimes if you’re a college President you’re just trying to provide educational opportunities that the marketplace (were it rational) wouldn’t support.  I’m not sure that’s exploitation.


About Doug Bennett

Doug Bennett is Emeritus President and Professor of Politics at Earlham College. He has a wife, Ellen, and two sons, Tommy (born 1984) and Robbie (born 2003).
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