10° 40' N, 61° 30' W

Friday, October 31, 2003


Burning the candle at both ends, I'm afraid. Among other things I've had the flu for the past week, which is not helped by working all of my scheduled shifts compounded by the four hour nights of sleep that I have to do to fit all of my reading in. (I am a slow reader.) Anyway, no one wants to hear this; they'd rather have something substantive. Here goes.

In June of this year Britain's main competition regulator, the Office of Fair Trading, launched an inquiry into an alleged tuition-fee cartel at independent (i.e. private) schools. An odd choice of target, perhaps, but the OFT has a wide remit, and can look into any market activity. The investigation is still ongoing, and it reminds me about some thoughts I had on school vouchers. I first read about vouchers in Milton Friedman seminal book Capitalism and Freedom, and I since then I've thought they are a fantastic idea. The questions I have relate to the process of their implemetation. Unless educational outcomes decline appreciably, vouchers are unlikely to be implemented in anything approaching an economist's ideal. What happens if the political/bureaucratic process falls short?

Incentives matter in any market; under a full voucher system, what incentive will there be for parents to the get the best value for money in their children's education? How "fungible" would a voucher be? In the limited voucher schemes that have been tried in the US, the problems are partly dealt with by partly by eligibility restrictions ("failing" schools, for instance) and incomplete funding. Incomplete funding looks to be the main solution to this, similar to the moral hazard problem with insurance contracts, but even with a compensating tax cut a political argument would develop against this on equity grounds. Such criticism has already been levelled against a current British Conservative Party proposal for a "School's Passport" (vouchers in all but name). As with current British university tuition fees, would there be pressure for the government to set a price cap on education? If the voucher is set at a sufficiently high level, but the vouchers are not fungible to some degree, what incentive will parents have to balance value with cost?

There is unlikely to be an entirely free education "market": schools in a voucher scheme are likely to be heavily regulated, with minimum standards to be met and legal requirements to fulfil for disbursement. Administrators are likely, for instance, to impose a form of rationing besides price, on the grounds of preventing parents of being "priced out" of a particular school. Other areas, especially in rural localities, won't have much scope for choice other than home schooling; how will they handle such a case of monopoly? Parent's could always exit and set up an alternative, for instance, but that depends on fungbility again; how easy will it be for a new school to be recognised? Balancing the civil rights issues (say, for instance, that some parents want to set up a madrassa with state funding) and the procedural hurdles could make this process a long one, making the costs of exit higher.

All of the above are mere thoughts, and I have yet to think about a solution to them and the other issues that could arise. There is a voluminous literature on this, relatively little of which I've read, and there are few real-world experiments on the ground. Vouchers are a beautifullly simple idea, but I can't help but think that if instituted there is likely to be a cat's cradle of complexity.

Wednesday, October 08, 2003


I've already mentioned that I was doing a course in Development and Growth at the London School of Economics. It is a different environment for me, to be honest. Birkbeck has a wide variance in ages, with 22-year olds and people in thir 50s on my programme. (I'm 28, in case you were wondering.) You also feel that everyone is more or less in the same boat; you are neither lesser nor greater than your peers. This enforces a collegiality of sorts, with the course group organising socials and group study fairly easily. As one of the class representatives last year I even set up a single website with all of the downloadable research papers we had to read, an effort much appreciated by fellow students.

The LSE, on the other hand, is full of bright young things fresh from completing their Bachelor's degrees. I felt like the oldest person in the room in the first lecture on Tuesday. Not only that but that everyone else, while not necessarily being so, exuded that they were smarter than you. This, to be honest, is a little intimidating. A lot of the students there clearly have not heard of countersignalling. Several students asked questions they clearly already knew the answers to to show off. (This was a lecture; there were not any questions directed to the class.) The competititiveness was clear from the outset. A lot of the packed room was clearly auditing the course for difficulty; some students left at the break, I guess intimidated by the sheer amount of the econometrics that we have to cover in the lectures. Except when we cover institutions (and not much even then) a political economy course this most definitely is not.

I do like the course and lecturer a lot, and I have no plans to switch. It's just different to what I'm used to, that's all. Probabaly not really worth posting about. Within two minutes of meeting the LSE's MSc tutor today (to get my intercollegiate form signed) she smiled and told me not to dissapoint her.

This is going to be an interesting year.

Libraries and Health Spas

A fractured tooth (2 dental visits, with a third next week) and multiple papers on the the robustness of cross-country growth regressions (with more to come) for my development course have so far kept me occupied, plus I've decided to take on more work by auditing an excellent option in game theory. There's also work, as in my day job. No worries. As I try to get back up to speed, let me comment on this New York Times article on amenities at American universities, already commented on by Stephen Karlson and Invisible Adjunct.

Birkbeck, my humble University of London college, is in the process of building an £18.5 million extension to its main building. It should have been finished at the beginning of August, but anyone who has looked at British railways should not place too much faith in British project management. The relocated economics department is currently a construction site without central heating and the extension to the library is still a work-in-progress, with a lot of books still in transit. Still, it looks nice, and it will be better than what we had before, once it's finished.

Part of the project involves a relocated Student's Union on the ground floor. I have no idea what this means, but whatever it means, it does not mean a health spa. British universities, as underfunded as they as are, could never dream of building such facilities. The University of London, like the LSE before it, is thinking of building a central student services centre, with relocated careers and housing offices. The University of London Union (separate from the constituent college student unions) just completed a refurbishment of its 50-year-old gym and swimming pool. That's about it. No artificial ice skating pond for us union members. Not that it matters to the college's core mission.

With the British government doing its best to push students into universities on its own (with an inexplicable and arbitrary target of 50 percent of the relevant age cohort in higher education) there is not much need for the UL colleges to do much of the heavy lifting in attracting students at the margin. Indeed, despite the expense of living in the city, the UL colleges are so attractive that, for example, the London School of Economics did not have clearing this year as Advanced Level results were so high there were no surplus places. A good, rigorous reputation, apparently, is attraction enough, and, while no college wants to be seen as a hellhole, there is no need for them to construct waterslides and 50-person climbing walls to attract students at the margin.

That's what water parks-and-health spas are about. If the discounted capital cost of the new US student centres together with their annual operational costs were divided over theadditional students gained, what would be the marginal cost of acquiring those students? Most of the schools mentioned in the article are state universites, meaning that the construction is taxpayer-subsidised; is this good value for public money? Also, if these schools took their teaching mission seriously, is a student who weights his decision heavily on the standard of the saunas worth having?

Perhaps the multitude of state-supported schools should decide what they want to be (a "core competence", if you will) and concentrate on that. Birkbeck, for instance, concentrates on teaching mature students--those 21 and over when they start--and part-time students. The students have less of a need for the support facilities that other institutions provide. Some are shocked to discover that the college library makes disposals of books it does not need or are never used; then again, while the college boasts several world-class researchers (in economics there's Dennis Snower and John Driffill, to name two) it's primarily a teaching instutution, with it's book holdings adjusted to suit. (Research students and academic staff have borrowing rights at every univerisity library within the Greater London area, so it's not that big a hindrance.) The college is making the most of its limited resources, and for that it should be commended. The college does not appear to be sufffering for students, especially given the chance of most students to work and study simultaneously.

I am not am not a director of "student recruitment" (a form of jargon used in some parts of the UK), but I wonder whether it is a worthwhile investment to attract middle-class students who otherwise would not have chosen to go to university in the first place--the situation in the UK, with the whole process of clearing "surplus" places on courses. (Their subsidy is largely determined by raw student numbers, so universities have an incentive to attract as many school leavers as their crumbling facilities can bear.) Flashy facilities would, in all likelihood, make this situation worse. Could any policymaker standup and be in favour of less students going to university?

Saturday, October 04, 2003

Normal Distributions

Stats exam over, back at work, sorting out losses, option chosen. Life goes on, just as George Lowenstein said it would.

Utterly exhausted. More tomorrow, promise.