Part I

Question 1

Describe Human Capital and explain why it is different from physical capital?

Answer 1

Human Capital:
According to Gary Becker, “human capital refers to the knowledge, information, ideas, skills, and health of individuals… (value) or attributes of people

Physical Capital:
goes beyond education, 
- cannot be collateralized; backing with asset
- cannot be owned by someone else
- cannot be sold

Question 2

Identify costs and benefits of education from an economic perspective.

Answer 2

Costs:
- forgone earnings
- out-of-pocket or direct expenses
- psychic losses: learning is difficult and tedious
Benefits: 
\+ higher earnings
\+ love learning
\+ career with high personal value
\+ networking
\+ status
\+ faculty

=> more economic costs than monetary costs…

Question 3

Identify changes in costs and benefits to education over time?

Answer 3

skill-biased technological change…

Question 4

Understand Present Discount Value; and calculate simple cases…

Answer 4

Formula for PV = …

Question 5

Identify asymmetries in information that would incentivize employers to use a signal to identify productive workers

Answer 5

• signals for specific education (HS, College, etc.)
  Workers:
• Performance varies
  Employers:
• fail to observe worker productivity based on characteristics / signals

Employers want to know productivity at time of hire; but don’t see punctuality, problem-solving, writing, attn. to detail…

Question 6

Pooling VS separating equilibria in Signaling Model

Answer 6

• Separating Equilibrium:
  a signaling equilibrium in which workers of different productivity levels obtain different schooling amounts; thus get different wages…
• Pooling Equilibrium:
  a signaling equilibrium in workers invest identically in the signal; thus, they are paid identical wages… (all in - everyone gets signal OR not)

Question 7

Understand the role of incentive compatibility constraints (ICCs) needed to ensure a separating equilibrium?

Answer 7

To ensure the self-reinforcing beliefs of employers to obtain separating equilibrium; employer impose ICC (incentive compatibility constraints) to ensure workers behave as such
Type H invests [+ ROI]
Type L does not invest (too costly…) [- ROI]

Question 8

Identify problems associated with estimating the returns to schooling (e.g. ability bias)

Answer 8

ISSUES WITH EST. CAUSAL EFFECTS
Ability Bias:
- ability is multi-dimensional
- high ability pursue more schooling
- do better in labor market
Selection Bias: 
- Big Problem for College Equality 
*Students select the "school" they want to attend
*Schools select the "students" they want

Question 9

Identify benefits of est. Mincer Model, but also understand its shortcomings

Answer 9

• Assumes individual can continue to invest in human capital after formal schooling..
• Model predictions: yrs of edu have linear effect on %-Change in wages…
• SKEPTICAL…

Question 10

In research, there are several problems associated with estimating education production functions

Answer 10

Hard to measure outside of school:

• family background
• peers
• community outputs

Measurement of Outputs can also be difficult:

• citizenship
• artistic ability
• creativity
• self-esteem

Specifying production process is difficult:
- differences across students in how they learn; one model does not apply to everyone

Choosing the unit of analysis is a challenge:

• school principle?
• District official?
• Federal/state gov?
• Teacher?

Question 11

With challenges associated with specifying and estimating education production functions, do they serve any purpose?

Answer 11

Yes, they do.
- Provide a framework for making predictions about education policies.
a. Total resource policies
b. Input policies
c. output policies
Better data, better data collection; better edu process
-quasi-experimental isolate 1 input…