Monday, January 27, 2014

Hoxby: elite universities as venture investors in human capital

From a new paper by Stanford economist Caroline Hoxby. She doubts the utility of MOOCS for elite institutions within the model she advocates for their operations: as investors in human capital. See earlier posts Magical Mystery MOOCS , Selectivity of US colleges and returns to elite education.

More comments when I have some time ...

Highly Selective Postsecondary Education (HSPE)

In other studies, I model HSPE institutions as venture capitalists in advanced human capital because (i) they invest massively in each student whom they educate and (ii) they earn an equity-like return on their investments (Hoxby, 2012). That is, the HSPE institution itself covers the majority of the cost of a student's undergraduate education using donations from alumni. Even HSPE students who receive no financial aid pay for only some of the full cost of their education.

HSPE alumni donate a share of their perceived returns on the educational investment made in them, and most donations occur decades after graduation. Because HSPE alumni earn returns that exhibit a highly right-skewed distribution (in each classs, there are many alumni with solid professional careers but only a few Steve Jobs), it matters that donations are analogous to shares of returns and not to the repayment of a loan (the institution's investment plus some fixed rate of return).

It is crucial for understanding HSPE institutions' viability that they are modeled as investors, not as the sellers of a service. If an HSPE institution does not infuse value-added into students that is proportional to the institution's investment, alumni cannot pay the institution back later in life, no matter how much they wish to do so. Thus, at least on average, HSPE institutions' investments must earn returns or they will go bankrupt. Interestingly, the alumni who are the most generous donors are those who needed financial aid as students and who attribute their later success to the institution.6

Of course, this financing system only works if former students do in fact pay back the institution later in life. The methods by which HSPE institutions achieve this intergenerational virtuous circle are therefore crucial and discussed below. ...


BobSykes said...

I deny the claim that elite universities like Stanford or Harvard actually educate people. Especially in the humanities their are re-education camps indoctrinating young people into various silly leftist delusions. Most students graduate knowing less than when they entered. And the faculty themselves are utter frauds.

What does happen is ruling class networking. The fact that the next ruling class is nekulturniy and economically illiterate is unimportant as long as they control the military, which nowadays itself is politicized.

We are living in a dark age of superstition, delusion, nihilism, libertinism, corruption and treason, and elite faculties are the source of much of this.

vv111y said...

Anecdotally I have heard this is not the case in STEM departments, or a lot less anyways. If someone knows more, please do share.

An enlightening talk I found was from David Gelernter here David Gelernter @ The Heartland Institute - YouTube

Coincidence - his solution to the political/social climate in universities is for conservatives to create their own online courses. The home-schooling movement for higher education.

ben_g said...

My school isn't going to get a cent from me because they made by transition into entrepeneurship so hellish rather than encouraging it

James Hedman said...

In the fast changing world of IT my college education was useless in keeping up with technology during my working career. MOOCS, or just plain books, will rule. In fact forget MOOCS, they are still manifestations of credentialism and credentialism is total BS.

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