February 8, 2014


Massive open online forces : The rise of online instruction will upend the economics of higher education (Feb 8th 2014, The Economist)

In America, bowing to the inevitable, universities have joined various startups in the rush to provide stand-alone instruction online, through Massive Open Online Courses, or MOOCs. Though much experimentation lies ahead, economics can shed light on how the market for higher education may change.

Two big forces underpin a university's costs. The first is the need for physical proximity. Adding students is expensive--they require more buildings and instructors--and so a university's marginal cost of production is high. That means that even in a competitive market, where price converges towards marginal cost, modern education is dear.

It is also hard to raise productivity. University lecturers can teach at most a few hundred students each semester--the maximum that can be squeezed into lecture halls and exam-marking rosters. Because it is so labour intensive higher education relies on large numbers of instructors paid relatively modest salaries.

MOOCs work completely differently. Alex Tabarrok, an economist at George Mason University and co-founder of an online-education site, Marginal Revolution University, reckons the most salient feature of the online course is its rock-bottom marginal cost: teaching additional students is virtually free. 
Posted by at February 8, 2014 7:26 AM
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