Education

Question 1

What does Caplan say about education (Signalling)?

Answer 1

• Signals your hard work and intellect
• You aren’t that much more of a smart person
• No way of knowing how you completed the degree (Sheepskin Effect)

Question 2

What does the St. Louis Reserves say about returns on education (HC Vs Earning)?

Answer 2

• More educated earn more because of Human Capital isn’t necessarily true
• Consider strata of society,
• Overall, RoE is around 8-13%, smaller in cities
• Non-monetarily benefits are important (marriages, enjoyment)

Question 3

What do Abel and Deitz say about the Cost/Benefit Analysis on college (Wage Premium)?

Answer 3

• Higher price of college and Lower Wages
• Still wage premium (1970s - 15%)
• Wage premium increasing and Opportunity Cost falling

Question 4

What does Rubinstein say about issues about economic models (reliability)?

Answer 4

• What SHOULD economic models achieve?
• Differences between economics and science
• Societal aspects of economics

Question 5

What is Discounting? Give the formula

Answer 5

• Costs are immediate, benefits are long-term
• Hence, Present Values and Future Values cannot be compared
• The discount rate (r) Is needed to make the future value comparable to the present value
• PV = FV / (1+r)

Question 6

What is the formula for Marginal Rate of Return?

Answer 6

• MRR = Increase in Earnings / Cost of Additional Year of Schooling (Implicit and Explicit)