I am curious how you would grade this answer to question 5: FALSE. The part about externalities is correct, since by definition, don’t affect private returns, so selfish students won’t care about them. Severe credit market imperfections, however, even if we presume they only result in too little credit rather than too much, need not make…
I am curious how you would grade this answer to question 5:
FALSE. The part about externalities is correct, since by definition, don’t affect private returns, so selfish students won’t care about them. Severe credit market imperfections, however, even if we presume they only result in too little credit rather than too much, need not make you more eager to continue your education either. If the goal of education is to increase your human capital and social capital, but imperfections make it more difficult to access financial capital, then spending down your financial capital and access to credit is more costly, and can stop you from having the complements necessary to profit from your education. One cannot assume that credit market imperfections will impact student loans or that loan rates reflect expected returns to education, since the student loan market is heavily subsidized by the government, so this does not provide strong evidence that returns to education are likely to be higher. One possible way, however, that excess returns could be implied is if, lacking good information on borrowers, those providing loans are using education as a proxy measure when giving out loans. In that case, continuing one’s education would provide additional access to more credit on better terms, which is valuable, increasing returns to education.
I am curious how you would grade this answer to question 5:
FALSE. The part about externalities is correct, since by definition, don’t affect private returns, so selfish students won’t care about them. Severe credit market imperfections, however, even if we presume they only result in too little credit rather than too much, need not make you more eager to continue your education either. If the goal of education is to increase your human capital and social capital, but imperfections make it more difficult to access financial capital, then spending down your financial capital and access to credit is more costly, and can stop you from having the complements necessary to profit from your education. One cannot assume that credit market imperfections will impact student loans or that loan rates reflect expected returns to education, since the student loan market is heavily subsidized by the government, so this does not provide strong evidence that returns to education are likely to be higher. One possible way, however, that excess returns could be implied is if, lacking good information on borrowers, those providing loans are using education as a proxy measure when giving out loans. In that case, continuing one’s education would provide additional access to more credit on better terms, which is valuable, increasing returns to education.