Authors: Yu Peng Lin
Addresses: Department of Economics, University of Detroit Mercy, 4001 W. McNichols Road, Detroit, MI, 48221-3038, USA
Abstract: The purpose of this research is to understand the rationality of applying the concept of return on investment in valuing higher education from the perspective of economics. Higher education serves its own unique purposes. Instead of attempting to directly define the purpose of higher education, economists more frequently try to tackle the question from the output side by trying to figure out how to value the outcome of college education. Yet, there are some uncertainties in the higher education system, which lead to the observed heterogeneous market price on the graduates. We show that while the market achieves equilibrium, the market wage tends to be equal to the graduate's expected productivity. The data of the median earnings for adults during the years 2005-2013 confirms that the market institutes value on higher education. Overall, the results of this study shed some light on justifying the use of return on investment in the task of valuing college education.
Keywords: higher education; profit maximisation; maturation process; education purpose; education value; economics; return on investment; ROI; market wage; expected productivity; median earnings.
International Journal of Economics and Accounting, 2016 Vol.7 No.1, pp.66 - 73
Received: 17 Sep 2015
Accepted: 18 Jan 2016
Published online: 26 May 2016 *