A growing student quality gap?

Caroline Hoxby finds, in a recent study, that the 10% most selective colleges and universities have become more selective since 1962 while the majority of colleges have become less selective. This seems to be related to an increasing willingness of students to attend more distant colleges and universities (possibly due to decreasing transportation and communication costs).  Since the most selective institutions receive a larger and more geographically diverse applicant pool, they have been able to become increasingly selective.  Increases in financial aid awards at select colleges have further raised the quality of the applicant pool by lowering the relative cost of attendance.

As the most selective colleges and universities have become more selective, the majority of colleges and universities have become less selective. This leads to a growing gap in the average measured quality of students in elite institutions and those in other institutions.  On the one hand, this may mean that students end up selected into institutions in which there is more homogenous levels of human capital among entering freshman. This may be desirable for society t0 the extent to which it makes it possible to tailor instruction to students with relatively similar prior academic backgrounds and preparation. To the extent that students learn from their peers, though, the growing homogeneity of student ability within institutions could lead to a growing gap in the amount of human capital accumulation in college. While interactions among the best and the brightest students help to enhance their learning, students in most institutions will have a smaller proportion of peers in the upper tail of the measured ability/performance distributions.  The relative rate of return to “select” institutions may continue to rise relative to that of attending  more typical colleges and universities if this student quality differential continues to expand.

Personal safety devices that decrease safety

An interesting article at MSNBC on personal locator beacons provides an interesting example of an economic concept in action. The existence of personal locator beacons lowers the cost to novices of engaging in riskier hiking adventures. This leads to greater risk-taking, especially when society bears some of the cost of the increased risk. We see many similar examples of this concept in action:

• The existence of deposit insurance, combined with banking deregulation under Reagan (and later G.W. Bush) encouraged people to place more deposits in those institutions that offered the highest returns, without regard to default risk (since they are insured against that).
• Bailouts of financial institutions that have engaged in especially shortsighted and risky behavior may reduce the incentive for other firms to engage in more prudent behavior.
• The existence of medical treatments for some of the health consequences of obesity have at least partly reduced the incentives for individuals to watch their diet and exercise regularly.

Education and Democracy

Edward Glaeser argues  in his Economix blog post today  that countries with high levels of education are much more likely to have strongly democratic insttutions.  While Thomas Jefferson made a similar argument a few centuries earlier, Jefferson’s econometric skills were a bit more limited.

In a political environment (and on an election day)  in which prevarication still seems to often be the norm, it is encouraging to think that continuing increases in human capital investment will help to improve political debate over time.   John Stuart Mill made a similar point in 1863:

It is better to be a human being dissatisfied than a pig
satisfied; better to be Socrates dissatisfied than a fool satisfied.
And if the fool, or the pig, are a different opinion, it is because
they only know their own side of the question. The other party to
the comparison knows both sides.

Good Economic News?

While the news of 3.5% growth in the third quarter of 2009 is encouraging, a full recovery is quite a ways off.  The most recent  national unemployment rate estimate is 9.8% (seasonally adjusted). As Krugman notes in his blog yesterday, at the current growth rate, it will take about a decade for the unemployment rate to return to something approximating full employment. A Taylor rule policy would keep the Fed at a near-zero interest rate target for the next 6 years.

Unless the pace of economic growth rises, it’s going to be a slow recovery. The last two recoveries were referred to as “jobless recoveries” because unemployment started to improve long after real GDP growth rose. If this occurs again, the economic climate may not feel much better for a while.

… and we wonder why economics is still called the dismal science…   It is, though, at least a bit less dismal than in the days of Ricardo and Malthus