Returns to Skills, Incentives to Study and Optimal Educational Standards

Posted: 20 Jan 2009

See all articles by Maria De Paola

Maria De Paola

Università degli Studi della Calabria - Department of Economics and Statistics

Vincenzo Scoppa

Università degli Studi della Calabria - Department of Economics and Statistics

Date Written: January 19, 2007

Abstract

In imperfectly competitive labor markets returns to skills are lower than their productivity and educational standards may play an important role in stimulating students to provide effort. We propose a principal-agent model to analyze the determinants of student effort and the setting of standards by a policy-maker maximizing alternative social welfare functions. We show that if the policy-maker takes into account individuals' future earnings, he finds it optimal to set lower standards in more distorted labor markets, whereas higher standards would be preferable for efficiency reasons. Moreover, we show that labor market distortions may also influence the amount of resources devoted to schools. Finally, it is shown that standard setting may be useful in preventing the opportunism of school principals in the use of resources.

Keywords: Education, Student Effort, Educational Standard, Incentives, Returns to Skills, Wage compression

JEL Classification: I21, J31, D82

Suggested Citation

De Paola, Maria and Scoppa, Vincenzo, Returns to Skills, Incentives to Study and Optimal Educational Standards (January 19, 2007). Journal of Economics, Vol. 92, No. 3, 2007. Available at SSRN: https://ssrn.com/abstract=1330005

Maria De Paola

Università degli Studi della Calabria - Department of Economics and Statistics ( email )

via Ponte Bucci
Arcavacata di Rende, Cosenza 87036
Italy

Vincenzo Scoppa (Contact Author)

Università degli Studi della Calabria - Department of Economics and Statistics ( email )

via Ponte Bucci
Arcavacata di Rende, Cosenza 87036
Italy

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