education_notes - 1. 2. 3. Education and Research Market...

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Education and Research 1. Market Failures and Research a. Pure public goods i. Perfectly shareable ii. Not excludable iii. Knowledge is an example iv. Research is an example (what is the difference between knowledge and research?) b. Increasing returns i. The more you produce, the cheaper it is to produce it. ii. Research is an example 2. Education is about acquiring knowledge a. It is an investment 3. Market Failures and Education a. perfect competition. i. credit market failures (can you borrow as much as you want at 4.5%?) ii. Can children borrow money at all? Do parents always do right by their children? iii. scale economies may lead to natural monopolies in small places. (1) most small towns have one high school. b. externalities i. productive: people may work better together if they are all well educated. (1) production externalities may be of the following form: educated people make everyone more productive. (a) Moretti (2004, J Econometrics ) has a nice result: by comparing wages for people of different education levels living in different cities (with different quantities of educated people), he shows that a 1% increase in the college-educated proportion increases the wages of dropouts by 1.9%, HS grads by 1.6% and college grad wages by 0.4%. (His clever instrument is the presence of a land-grant college, which influences the college graduate
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education_notes - 1. 2. 3. Education and Research Market...

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