Naked Economics: Undressing the Dismal Science pdfdrive com
McDonald’s didn’t create a better hamburger
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Naked Economics Undressing the Dismal Science ( PDFDrive )
McDonald’s didn’t create a better hamburger
W hen Bill Clinton ran for president in 1992, he floated the idea of Hope Scholarships. The Clinton plan (based on an earlier experiment at Yale) was seemingly elegant: Students could borrow money for college and then repay the loans after graduation with a percentage of their annual income rather than the usual fixed payments of principal plus interest. Graduates who went on to become investment bankers would owe more in student loans than graduates who counseled disadvantaged teens in poor neighborhoods, which was exactly the point. The plan was designed to address the concern that students graduating with large debts are forced to do well rather than do good. After all, it is hard to become a teacher or a social worker after graduating with $75,000 in student loans. In theory, the program would finance itself. Administrators could determine the average postgraduation salary for eligible students and then calculate the percentage of income they would have to pay in order for the program to recoup its costs—say 1.5 percent of annual income for fifteen years. Students who became brain surgeons would pay back more than average; students who fought tropical diseases in Togo would pay less. On average, the high and low earners would cancel each other out and the program would break even. There was just one problem: The Hope Scholarships had no hope of working, at least not without a large, ongoing government subsidy. The problem was a crucial asymmetry of information: Students know more about their future career plans than loan administrators do. College students never know their future plans with certainty, but most have a good idea whether their postgraduation income will be more or less than average—which is enough to postgraduation income will be more or less than average—which is enough to determine if a Hope Scholarship would be more or less expensive than a conventional loan. Aspiring Wall Street barons would avoid the program because it’s a bad deal for them. Who wants to pay back 1.5 percent of $5 million every year for fifteen years when a conventional loan would be much cheaper? Meanwhile, the world’s future kindergarten teachers and Peace Corps volunteers would opt in. The result is called adverse selection; future graduates sort themselves in or out of the program based on private information about their career plans. In the end, the program attracts predominantly low earners. The repayment calculations, based on the average postgraduation salary, no longer apply and the program cannot recover its costs. One may assume that Mr. Clinton ignored what his advisers almost certainly told him about the Yale experiment: It was quietly canceled after five years, both because repayments fell short of projections and because the administrative costs were prohibitive. Of course, Bill Clinton was not the last to dally with this idea, which is just too alluring to go away. In 2013, Oregon legislators proposed Pay It Forward, which was a rewarmed version of the HOPE Scholarship (which was a rewarmed version of the Yale plan). Instead of tuition, students attending an Oregon college or university would be able to pledge a percentage of their future income for a set number of years. If the plan were optional, students who expected high future incomes would opt out. If it were mandatory, those future doctors and engineers would likely attend college in a different state. Yes, college is too expensive; no, adverse selection is not going away any time soon. In describing this legislative trial balloon, The Atlantic minced no words in the headline: “Oregon’s Very Radical and Very Terrible Plan to Make College ‘Tuition-Free.’” 1 What we don’t know can hurt us. Economists study how we acquire information, what we do with it, and how we make decisions when all we get to see is a book’s cover. Indeed, the Swedish Academy of Sciences recognized this point in 2001 by awarding the Nobel Prize in Economics to George Akerlof, Michael Spence, and Joseph Stiglitz for their seminal work on the economics of information. Their work explores the problems that arise when rational people are forced to make decisions based on incomplete information, or when one Download 1.74 Mb. Do'stlaringiz bilan baham: |
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