Education Economics

Education should be about knowledge. But it is possible to model the economy of education if one wants to.

An economic model of education

Let:

• SN = student number
• FEE be fees per student
• FC = Fixed cost to run a university
• EC = Cost to educate one student
• CIQ = Monetary cost of issuing qualification = 0 (assumed to be negligible)
• Rep = Reputation of the university

We define:

• Revenue R = SN * FEE
• Approximate monetary cost of providing education to students C = FC + EC * SN
• Surplus S = R - C = SN * FEE - FC - EC * SN = (FEE - EC) * SN - FC

When education is the goal

For a management that cares about education, this is a constrained optimization problem. The goal is to maximize knowledge acquisition and education. The constraint is that the management has to balance the book over time:

• Maximize knowledge acquisition and education (which cannot be quantified), subject to constraint:
  Summation(S_t) = 0 (approximately)

When surplus is the goal

For a management that cares about surplus, S, the task is to maximise S.

• SN_t = f(FEE_t-1, FC_t-1, EC_t-1, Rep_t-1)
  where f is a function not specified here, but one can assume that SN_t increases as FEE_t decreases and FC_t-1 and EC_t-1 increase
• Surplus S_t = (FEE_t - EC_t) * f(FEE_t, FC_t-1, EC_t-1, Rep_t-1) - FC_t

When one pays attention to short term goals only

However, one can expect a rational management that cares about short term performance only to maximise S_t by reducing EC_t and FC_t.

The extreme case would be to drop EC_t to 0. To save cost and maximize student (customer) satisfaction, (which could lead to increase in SN), a university can issue qualifications as soon as FEEs are paid. Such universities should have no future.

The extreme model may be suicidal. But that does not stop universities edging towards that model, with the hope that:

1. No one would notice;
2. Many peers are doing the same, and therefore it does not matter.

Related: "Education is not their goal"

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