Bryan Caplan  

Common Sense and the Marginal Student

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Christina Romer's Contradictio... Economic Ideas Not Well Popula...
Common sense says that marginal consumer of a product - the person who say "Eh, why not?" before he buys - benefits less from his purchase than the product's average consumer.  This is clearly true for consumption decisions: The typical person at the opera clearly enjoys the show more than the reluctant newbie whose friends talk him into going. 

This principle - the marginal person gains less than the average - is equally plausible for investment decisions.  The typical college student will earn a larger return from his education than the kid who grudgingly enrolls to get his parents off his back.  When I share this claim with practicing labor economists, however, they're quick to rebuke me.  Don't I know that instrumental variables methods show that the marginal student gains at least as much - if not more - than the average student? 

My main technical objection is that labor economists inappropriately focus on completed education rather than attempted education.  But that aside, I simply consider common sense more reliable than instrumental variables.  Fancy econometrics reduces my confidence in my original position, but only slightly.

Now just yesterday, I learned that Heckman and co-authors have a new NBER working paper vindicating the common sense view that marginal students earn a lower return.  Their evidence against all the fancy econometrics is... even fancier econometrics:
This paper estimates the marginal returns to college for individuals induced to enroll in college by different marginal policy changes. The recent instrumental variables literature seeks to estimate this parameter, but in general it does so only under strong assumptions that are tested and found wanting... Our empirical analysis shows that returns are higher for individuals with values of unobservables that make them more likely to attend college.
It would be tempting, but dishonest, to claim that the latest research "proves me right."  I was convinced that school helped the marginal student less years before I heard about Heckman's results.  I doubt that reading his research in depth will make me any more confident.  Yes, I'm glad to see Heckman lending his Nobel status to the common sense position.  But in a perfect world, the common sense position wouldn't need his status to survive.

P.S. Dan Klein and I are speaking in Madison, Wisconsin tonight (Monday 10/25).  If you make the talk, please say hi.


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COMMENTS (10 to date)
Troy Camplin writes:

In other words, as I have argued in a few pieces in the Dallas Morning News, education isn't for everyone. For the marginal student, in other words, the money spent is a huge waste vs. the gain.

John Shanks writes:

Er, Troy, by definition the marginal student is indifferent between having more education or not.

I think what you mean to say is that the marginal value of education is 0 at a much lower percent of the population than our current system tries to theoretically reach.

Of course, the rejoinder is that the marginal value of higher education for a given individual would rise if we had a more efficient and effective preparation system.

Talosaga writes:

I'm not very familiar with this issue, but this struck me as an important point:

The 'marginal student' being indifferent between going to college or not means that will get the same utility from going or not going. (in econ speak) But a student's utility is not just dependant on lifetime earnings and different students value lifetime earnings differently. Marginal students may simply place greater value on leisure time, may be more impacient meaning they want money (and thus a job) now rather than later, etc.

A student gaining less utility from going to college doesn't necessarily mean that that student will get a lower increase in lifetime salary from going to college.

Johnalee writes:

I completely agree with your stance on this issue. It's true that normal consumers gain more satisfaction than marginal consumers in most situations, and higher education is indeed one of them. Everyone that enrolls in college pays for it. It's the individuals that actually want an education who work hard enough to graduate and gain satisfaction from their "purchase". Students who fail out, drop out, or are kicked out have paid their fees but do not get even remotely the same satisfaction out of their experience. In the latter case, the cost of college outweighed the education and benefits that they received.

There are exceptions. Some students are forced to go to college and still end up with a degree. In this case, they have gained the same satisfaction as those who wanted to go to university. However, that is not necessarily because of any economic law; that kid probably just got his act together after entering college. And with a little elbow grease, he managed to graduate. This outcome would give him the same returns on his education as any other graduate.

Douglass Holmes writes:

I totally agree with you, Dr. Caplan, that the marginal student won't receive much value from a college education, and I am especially concerned that students are STILL going into large amounts of debt to buy an education that may not be completed, or if completed, may not provide sufficient market value to repay the loan.
My concern is with your belief that common sense tells us this. It does, in this case. But common sense is a rather subjective thing. Here are some things that common sense tells a lot of my friends.
1. Free trade allows companies to ship jobs overseas, eliminating good-paying middle class jobs here in the USA.
2. The unfettered marked will always work against the middle and lower classes.
3. Productivity gains reduce middle class jobs, forcing people out of the middle class and into poverty.
4. Numbers 1, 2, and 3 have already resulted in much of the middle class becoming poor.

In other words, common sense confirms each of the four biases (anti-foreign, anti-market, make-work, pessimistic) that you discuss in The Myth of the Rational Voter.
That's why I don't always trust common sense.

John Thacker writes:
I doubt that reading his research in depth will make me any more confident.

I find this hard to believe. If you weren't supremely confident beforehand (100% probability belief), then it's pretty unlikely that the research would fail to increase your confidence at least slightly.

More accurately, wouldn't you say that you doubt that reading his research would make you "significantly more confident?"

Julien Couvreur writes:

I think the issue is simply a discrepancy in the usage of the terms "benefit" or "value".

When econometric economists look at the gains, it is usually in terms of wages.
When "a priori" economists look at the (expected) benefits, they use the notion of subjective value as perceived by the actor.

Brett writes:

I agree with the stance that a student who wants to attend college will get a greater benefit from a college education than a student who does not care if he or she goes to college or not. In this case desire makes the difference. This thought could also be exemplified by the contrast between a man on his seventh trip to the buffet line and a man who has not eaten in a week. When discussing costs and revenue for a business this common sense statement may not apply. However when the human factor enters the picture, a difference in desire causes a difference in result.

Big Ric writes:

I am also going to have to agree with everything being said here. I do believe that the average student does have more of a gain than the marginal student. It is logical that the person who takes the education seriously will indeed have more of a gain, asuming that they actually take that degree and do something with it. Also it makes perfect sense that the marginal student does not have the same benefit as the average student because they are dropouts or people who don't care.

The point was made that some of these marginal students may make a change in college and actually want to make something of their education. Due to this they get the same benefit as the average student and can make something with their education. I think that the marginal student actually has more potential to change when placed in the environment where the average operate. I understand the argument but could it be possible to take every marginal student and convert them into the average.

Everybody pays....that's just life though.

Jeff writes:

This is just the notion of consumer surplus in an unfamiliar guise. If the demand for education curve slopes down, then at any given price, there are some people who would have been willing to pay more than that price for it. The marginal consumer is the one who is indifferent.

Doesn't anyone know micro these days?

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