Some readings (& podcast) putting Randomized Control Trials (RCT)s into perspective

Like incentivised laboratory experiments Randomized Control Trials (RCTs) are all the rage in economics.  RCTs are commonplace in the health sector starting with Pasteur’s first controlled trials 200 years ago. While application of RCTs to social sciences is relatively recent.

However, by their very nature social sciences involve researching social groups and networks where information is distributed and co-ordinated with relative ease and frequency.

This creates a unique problem for RCTs in social research because it is very difficult to construct experiments that are able to completely seal information within evaluated units.  Importantly, the closer the social networks of individuals the more likely there will be information contamination and that individuals in the ‘control’ condition will act on this information. Continue reading

What drives increases in University fees? Bennett hypothesis vs Baumol’s cost disease

Over the last 15 years, increases in higher education fees have accelerated and are now rising faster than any other part of the economy.  Outstripping even the rising cost of medicine and health care.  And yet we see no meaningful improvements in productivity or GDP growth over the same time period.  Since 1978, the cost of higher education has increased in the US by 1,120% – more than 11 times.  This graph from Bloomberg clearly illustrates the anomaly of higher education fee inflation.

 Bloomberg tuition (s)Source: Bloomberg, Data: Bloomberg Labor Department

 What’s driving higher education fees higher? 

What we see in the wider economy does not justify an explanation that fees are increasing in line with improved earnings expectations.  There is some improvement in earnings overall but productivity and GDP are not rising anywhere near as fast to justify this optimism.  If we had a matching 1,120% increase in productivity or GDP over the last 30 years the world economy would be a lot more rosier place than it is at the Continue reading

Breaking down the myth that we need competition to make education policy work

An article published in The Australian today Push for universities to share students‘ discussed some of my views regarding the lessons we have learnt from deregulating the schools sector and the consequential impact on the ‘market’ dynamics of educational institutions (i.e. how universities behave).  One of the myths put forward as a reason for deregulating fees within the higher education sector in Australia is the (misguided) belief that competition in student fees will lead to institutional diversity.  However, when it comes to experience goods in education, student (parent) risk aversion leads to a strong preference for universities (schools) to offer the largest range of subjects possible given available funds.  This leads to the crowding of efficiencies from specialization and potentially sacrifices educational quality if the competition is intense.

The main driver of student (parent) risk aversion is the high switching costs associated with changing misinformed choices.  This happens a lot with experience goods where there is little opportunity to repeatedly test choices.  Choices in education are completely different to consumer purchases of milk or bread for example.  Where a bad choice is low cost and easily rectified. Continue reading

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