Economic Mobility
The Life of Elephants

For-Profit Education

Jonathan B. Wight

We all like it when private interests have an incentive to produce social benefits.  That is generally the case in markets. 

When do markets fail?  When externalities and asymmetric information are large enough problems to cause significant social ramifications that are not included in the price. 

Bacon’s Rebellion reports on the problems with for-profit universities.  The incentives of a for-profit institution align with taking in as many students as they can, as long as those students don’t really care about quality. 

The article cites the University of Northern Virginia as being unable to get accreditation because it had no standards for faculty or admissions.  Allegedly it was operating as a “visa factory” for foreign students wanting to get into the United States.  It made a lot of money.  Although the school is now defunct, it was able to earn a profit for 15 years sailing under the radar. 

Regulations can be a bad thing, stifling creativity and operating as a sham to prevent competition.  But the flip side is a world of no regulation.  One’s instinct is to say, “Let the students and potential employers of students be the gatekeepers for quality in education.”  Let a thousand flowers bloom and let’s see what works!  Except that along the way significant external costs can be imposed on the rest of society, as apparently were in this case. 


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