EC3044 Economics of Education
Assignment Brief
1. This written assignment makes up 100% of the module mark.
2. Due date: April 24, 2024, at 3pm UK time to be submitted in Blackboard
3. Release date: April 18, 2024, at 3pm UK time in Blackboard
4. Eight questions, three of which with multiple parts; the mark for each subpart is stated in the question. Answer all questions.
5. All questions should be either straight from, or at least closely related to, materials in lecture notes, seminar questions, suggested readings mentioned in Blackboard.
6. No calculations question.
7. No word limits: see my answers to seminar questions for details expected. Background discussions should be limited to just suffice for a clear answer.
1. Consider the Benabou model.
(a) There are two districts in the city. Suppose that district C1 has 30% and district C2 70% of the city’s housing stock. Also, 30% of households in the city are type A high income (human capital) households and 70% are type B low income (human capital). Let hA and hB denote the respective human capital of the parents of types A and B households, ρ1 and ρ2 the respective rents in districts 1 and 2, x1 and x2 the respective fractions of type A households in districts 1 and 2 and V the indirect utility function.
(i) (5 points) Suppose that C1 is the high-income district in a segregated equilibrium; i.e., x1 > x2. Can the equilibrium rents be such that that V(hB, ρ1, x1) > V(hB, ρ2, x2)? Why or why not?
(ii) (5 points) Suppose that C2 is the high-income district in a segregated equilibrium; i.e., x2 > x1. Can the equilibrium rents be such that that V(hA, ρ1, x1) > V(hA, ρ2, x2)? Why or why not?
(b) (12 points) The UK shows low levels of social mobility, meaning that there is a high correlation between parent and children’s income or other socio-economic indicators. What are the conditions in the Benabou model that may cause the high correlation? Explain. What policy interventions may counteract the effects of each of those conditions that cause the high correlation?
2. (8 points) There is an inherent efficiency-equality tradeoff in the Lazear model of optimal class size; i.e., efficiency may only be attained at the expense of sacrificing the equality of educational opportunity. Explain what that tradeoff is about.
3. (7 points) There are two types of workers whose productivities are equal to a H and aL, respectively, where aH > aL. It costs a type H worker cH to acquire a given educational qualification and a type L worker cL to do so, where cL > cH. Among the population of workers, a fraction h is type H and the rest are type L. Consider the statement: Type L workers would choose to acquire the educational qualification if cL < aH - aL since the increase in wage earning suffices to cover the cost of acquiring the qualifications. True or false? Explain.
4. Consider the model by Epple and Romano (1998) in the lecture, “Private Schools and School Vouchers” .
(a) (8 points) There are two private schools i = 1,2 and a public-school sector indexed by i = 0. The school qualities of these schools are, respectively, θ0 = 20, θ1 = 23 and θ2 = 40. Suppose a student is offered admission by both schools 1 and 2 and the student is indifferent between the two schools. Is this student paying a tuition above or just equal to school 1’s EMC (effective marginal cost) to admit the student? Is this student paying a tuition above or just to school 2’s EMC to admit the student? Explain.
(b) (7 points) Who should benefit the most in terms of income level and ability from the introduction of universal school vouchers? Explain.
5. (8 points) In empirical studies of students’ educational performance, the usual finding is that parental inputs, but not school inputs, matter. Suppose the truth is that both inputs do matter, but it is just that the usual OLS estimation somehow misses the impacts of school inputs on students’ educational performance but manages to capture the impacts of parental inputs. Use the Ballentine diagram to illustrate how this might happen. Explain why the sizes of the various circles and the extent to which they overlap in your diagram are reasonable depiction of reality.