What is it about?
The paper explores the effects of tying University income to the income of its graduates. It shows that this creates an incentive for Universities to adjust their teaching to maximise the future earnings of its students subject to costs. It then examines whether it would lead to a change in the subjects available for study and concludes that the evidence that this would be a result is weak.
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Why is it important?
How to finance the provision of higher education to a larger share of the population is a major political and economic issue around the world, in particular in the US and the UK. The fact that many courses do not enhance future earnings leads to significant losses to the graduate and taxpayer. The paper identifies the cause as a mis-alignment of incentives where Universities do not share in the risk that the education they provide will be of little value. The paper proposes a risk-sharing methodology and concludes that it would align interests between student and University with no material negative effects.
Perspectives
As machines advance there is little that is more important to society than preparing our young for that future. That must mean a higher education for an ever larger proportion so that they can develop their uniquely human skills to the maximum. The evidence is that currently Universities are not keeping up with the ever changing demands of the workplace and too many students get little or no benefit from their expensive education. University behaviour is consistent with how they are paid - on a per head basis rather than in relation to value-added. To get the best out of higher education Universities must be paid on outcomes.
Mr Peter Ainsworth
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Read the Original
This page is a summary of: Incentive Effects in Higher Education: an Improved Funding Model for Universities, Economic Affairs, October 2016, Wiley,
DOI: 10.1111/ecaf.12194.
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