long term competition in a dynamic game the cold fish war this article presents a model of credible voluntary collective agreements in a dynamic game these agreements are implicit in collections of history dependent threat strategies i consider the strategies in a game of resource exploitation credibility is represented by perfect equilibrium voluntarism requires at least that all behavior be supported by the threat of collapse of the agreement which would return the players to the memoryless equilibrium collective rationality requires that the agreement be robust to the possibility of mutually beneficial renegotiation i analyze the set of agreements meeting each of these restrictions

labor market returns to two and four year college the paper examines labor market returns to a two and four year college education analysis of the 1972 national longitudinal survey of youth observation that the average person who attended a two year college earned about 10 percent more than those without any college education comparison with the wages of those who attended a four year college education

the dynamic efficiency of capitalism abstract variants of lancaster s original model on the inefficiency of capitalism have continued to interest scholars in a slight extension of the original finite horizon model of lancaster the possibility of more or less completely efficient outcomes is shown in the present paper such results are effected by the introduction of standard trigger strategies and soft trigger strategies defined in the present paper

skills schooling and household income in ghana this article examines the impact of cognitive skills on the income of households in ghana it uses scores on mathematics and english tests to measure cognitive skills and estimates the returns to these skills based on farm profit off farm income and total income the article uses powell s censored least absolute deviations and symmetrically trimmed least squares estimators to estimate farm and off farm income in contrast to heckman s two step or the tobit estimator powell s estimators are consistent in the presence of heteroscedasticity and are robust to other violations of normality the results show that cognitive skills have a positive effect on total and off farm income but do not have a statistically significant effect on farm income

nash and stackelberg solutions in a differential game model of capitalism abstract this paper examines two noncooperative open loop solution concepts in a simple model of economic growth and distribution formulated as a differential game between workers who may save or consume and capitalists who may consume or invest it is demonstrated that both players prefer the stackelberg game to the nash game furthermore it is shown that under fairly realistic assumptions about the parameters of the model both workers and capitalists would prefer to act as the follower in the stackelberg game this means that capitalism is in a stalemate i e in a position where neither class wants to take the initiative and announce its strategy first the result is interpreted as an explanation of the difficulties met in designing and implementing incomes policies and social contracts

budgetary policy and unemployment dynamics in an olg model with collective bargaining we consider a dynamic general equilibrium model with capital accumulation and collective wage bargaining and investigate how unemployment responds to structural shocks under two stylised budgetary policies under balanced budgets tax adjustments lead to higher unemployment on impact but enable a quick recovery of employment by contrast unbalanced budgets mitigate unemployment effects on impact but dynamics are more persistent due to weaker capital accumulation and future fiscal consolidations these results are consistent with empirical evidence on a positive cross country relationship between government borrowing and unemployment persistence this paper starts out from the well known fact that many european countries have suffered from persistently high unemployment over the past two decades there is a large literature which attempts to explain this development as resulting from a combination of structural shocks and mechanisms which make the effects of any such shifts more persistent one prominent branch of this literature stresses that adverse structural shocks tend to induce a slowdown in capital accumulation which reinforces the employment losses and adds to unemployment persistence bean 1989 benassy 1997 blanchard 1997 burda 1988 caballero and hammour 1998 daveri and tabellini 2000 similarly these studies point out that when the shock is over the recovery of employment depends critically on the speed with which investments in capital respond to the new situation the purpose of this paper is to reconsider this capital shortage hypothesis by linking it explicitly to the stance of fiscal policy to see the importance of fiscal policy in this context consider a government which faces an adverse structural shock such as a drop in employment due to a wage setting shock and decides whether it should keep its budget balanced or not this decision will affect the overall structure of assets in the economy i e the mix between capital and government bonds and this mix will in turn be an important determinant of the speed with which the economy can create employment once the shock is over in particular according to the capital shortage hypothesis the recovery in terms of employment is likely to take longer under a policy which temporarily accepts structural budget deficits particularly when crowding out effects have been substantial

a classical model of the class struggle a game theoretic approach the class struggle is formalized as a differential game in a strictly supply side model an approach that synthesizes the models of lancaster and goodwin four different steady state equilibria are derived each corresponding to different assumptions about the degree to which each class is organized to promote its own interests in particular the goodwin growth cycle is shown to emerge from a world characterized by unorganized capitalists and workers in which individuals ignore the effects of their own actions on economywide variables more relevant for discussion of modern capitalism are the hierarchical equilibria especially the codetermination equilibrium in which the existence of a full employment equilibrium turns out to be problematic finally comparative statics results suggest that the incentives for technological change differ widely among the four regimes

on the dominance of capitalists leadership in a feedback stackelberg solution of a differential game model of capitalism abstract this paper deals with a modified version of the lancaster model of capitalism where it is assumed that there is a cost jointly borne by the two groups of players workers versus capitalists and associated with the bargaining of a larger share of consumption for the workers it is shown that a feedback stackelberg solution with the capitalists acting as leaders and announcing their investment policy at the beginning of each period is a solution dominating the feedback nash solution the paper is also intended to be a tutorial on the feedback stackelberg solution a concept not so often used by economic modelers

efficient equilibria in a differential game of capitalism abstract one considers a differential game of capitalism a la lancaster feedback nash equilibria and pareto optimal solutions are characterized under the assumption that the planning horizon is infinite it is then shown that by combining a pareto optimal solution with the nash feedback equilibrium strategy pair which plays the role of a threat one can obtain an efficient equilibrium which is also subgame perfect in the sense of selten this result modifies sensibly the previous interpretation of the inherent inefficiency of capitalism

industry self regulation without sanctions the chemical industry s responsible care program industry self regulation the voluntary association of firms to control their collective action has been proposed as a complement to government regulation proponents argue that the establishment of

education and economic performance simplistic theories and their policy consequences a largely unquestioned consensus proclaims that educational policy is an effective tool for delivering prosperity and increasing rates of economic growth this consensus rests on far less secure foundations than is commonly supposed international comparisons confirm that as they become richer people seek ever more education for their children but provide no clear cut evidence of economic benefits accruing to countries which are high spending in education terms analyses which extrapolate from the incomes of educated individuals rest on assumptions about how wages are determined and the extent to which rewards are for skills acquired in schooling which are highly questionable moreover an uncritical belief in educational expansion leads to target driven policies with serious negative effects on educational quality a more realistic view of education s economic impact and a move away from centralized planning for economic ends would actually improve the quality of education copyright 2004 oxford university press

corporate social responsibility theories mapping the territory the corporate social responsibility csr field presents not only a landscape of theories but also a proliferation of approaches which are controversial complex and unclear this article tries to clarify the sit uation mapping the territory by classifying the main csr theories and related approaches in four groups 1 instrumental theories in which the corporation is seen as only an instrument for wealth creation and its social activities are only a means to achieve economic results 2 political theories which concern themselves with the power of corporations in society and a responsible use of this power in the political arena 3 integrative theories in which the corporation is focused on the satisfaction of social demands and 4 ethical theories based on ethical responsibilities of corporations to society in practice each csr theory presents four dimensions related to profits political performance social demands and ethical values the findings suggest the necessity to develop a new theory on the business and society relationship which should integrate these four dimensions

why countries with the same technology and preferences can have different growth rates abstract a standard ak model of endogenous growth has been extended to allow for an intertemporal conflict between capitalists and workers for the dynamic game thus obtained an equilibrium solution in feedback nash markovian strategies have been computed however many equilibria in trigger strategies can dominate the former there are dominating strategies that depend on the country specific bargaining power of the workers versus capitalists they are both pareto optimal and subgame perfect this provides an explanation why countries which are completely identical in preferences technology and factor endowments can experience different long term growth rates

threats and bargaining in capitalism a differential game view abstract the paper examines the nash bargaining equilibrium in a simple model of growth and distribution formulated as a differential game between workers who may save or consume and capitalists who may consume or invest optimal threats announced by the social classes to affect the negotiated solution to their own advantage are also derived it is demonstrated that the workers threat takes the form of refusing to save while capitalists threaten to refrain from investing the threats as well as the possible gains from cooperation determine the players relative importance or bargaining power it is shown that capitalists are in general in a stronger bargaining position than workers the dependence of the bargaining power on the parameters of the model is examined

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

nation states vs united empire effects of political competition on economic growth is political fragmentation i e nation states more favorable to economic growth than political unification i e a united empire this study develops an endogenous growth model to analyze the growth effects of fragmentation versus unification under unification the economy is vulnerable to excessive leviathan taxation and possibly subject to the costs of unifying heterogeneous populations under fragmentation the competing rulers are constrained in taxation but spend excessively on military defense if capital mobility is above below a threshold then fragmentation unification would favor growth and this threshold is increasing in the degree of defense competition and decreasing in the costs of heterogeneity

the effect of sibling sex composition on women s education and earnings this paper documents the impact of siblings on the education of men and women born in the united states between 1920 and 1965 we examine the effect of the number and sex composition of a boy or girl s siblings on that child s educational attainment we find that throughout the century women s educational choices have been systematically affected by the sex composition of her siblings and that men s choices have not women raised only with brothers have received on average significantly more education than women raised with any sisters controlling for household size since sibling sex composition affects women s educational attainment and plausibly may be unrelated to other determinants of earnings it may provide a useful instrument for education in earnings functions for women our results suggest that standard estimates significantly underestimate the return to schooling for women

sex wages and productivity an empirical analysis of israeli firm level data sex discrimination in labor markets may generate a wage gap between men and women that exceeds any gap in marginal productivity we test for this type of discrimination using unique firm level data on manufacturing firms in israel there is a statistically significant negative association between wages and the proportion of a firm s workforce that is female however there is also a statistically significant negative association between marginal productivity and the proportion of females the difference beween the wage and productivity gaps is small relative to wage regression estimates of wage discrimination and is not statistically significant which is most consistent with no discrimination

the feedback equilibria of a differential game of capitalism abstract the feedback equilibria of a capitalistic game described by kelvin lancaster are derived under concave utility functions with a constant degree of absolute risk aversion and standard production function it is shown that the equilibrium solution is unique if the rate of time preference and the constant degree of absolute risk aversion are sufficiently great some properties of the equilibrium solution are reported

channel coordination over time incentive equilibria and credibility abstract the paper studies a channel of distribution consisting of a manufacturer and a retailer in a dynamic game of pricing and advertising the carry over effects of channel member s advertising efforts are summarized in a stock of advertising goodwill each channel member has perfect information about the other channel member s price and advertising effort if each firm employs marketing strategies that are linear functions of the other member s actions and these strategies are jointly carried out a pareto optimal joint profit maximization outcome can be realized the paper also addresses the question of credibility of the incentive strategies

are educated workers really more productive abstract this paper presents a new method for examining the productive nature of education it outlines an econometric model which simultaneously estimates an earnings function and a production function for workers and the firms where they are employed this approach permits a direct comparison to be made between the relative wage and relative productivity of workers with different levels of education using a unique data set from ghana two primary questions are addressed 1 are educated workers more productive than workers with no formal education and 2 do earnings differentials between workers with different levels of education reflect genuine productivity differentials the results suggest that education is positively correlated with productivity in ghanaian manufacturing and that firms pay workers according to their productivity

are earnings profiles steeper than productivity profiles we test competing explanations of rising age earnings profiles by obtaining direct estimates of marginal productivity differentials between workers in different age groups and comparing these to associated earnings differentials using contemporary data from israeli manufacturing firms the results indicate that controlling for other productive inputs and firm characteristics for the unskilled or less skilled workers who represent most of the workers in our sample both earnings and productivity profiles are upward sloping moreover these profiles mirror each other closely and are statistically indistinguishable however the estimates of the profiles are sufficiently imprecise that even sizable deviations between point estimates of earnings growth and productivity growth would not be statistically significant while we view the results as most consistent with a general human capital model of rising earnings profiles over the life cycle there is not strong evidence with which to reject alternative models

estimates of the economic returns to schooling from a new sample of twins this paper uses a new survey to contrast the wages of genetically identical twins with different schooling levels multiple measurements of schooling levels were also collected to assess the effect of reporting error on the estimated economic returns to schooling the data indicate that omitted ability variables do not bias the estimated return to schooling upward but that measurement error does bias it downward adjustment for measurement error indicates that an additional year of schooling increases wages by 12 to 16 percent a higher estimate of the economic returns to schooling than has been previously found copyright 1994 by american economic association

does compulsory school attendance affect schooling and earnings we establish that season of birth is related to educational attainment because of school start age policy and compulsory school attendance laws individuals born in the beginning of the year start school at an older age and can therefore drop out after completing less schooling than individuals born near the end of the year roughly 25 percent of potential dropouts remain in school because of compulsory schooling laws we estimate the impact of compulsory schooling on earnings by using quarter of birth as an instrument for education the instrumental variables estimate of the return to education is close to the ordinary least squares estimate suggesting that there is little bias in conventional estimates every developed country in the world has a compulsory schooling requirement yet little is known about the effect these laws have on educational attainment and earnings 1 this paper exploits an unusual natural experiment to estimate the impact of compulsory schooling laws in the united states the experiment stems from the fact that children born in different months of the year start school at different ages while compulsory schooling laws generally require students to remain in school until their sixteenth or seventeenth birthday in effect the interaction of school entry requirements and compulsory schooling laws compel students born

noncooperative solutions for a differential game model of fishery abstract in this paper a generalization of gordon schaefer s fishery resource model to a duopoly is presented the resulting noncooperative game is solved analytically as well as numerically by using the equilibrium concepts of nash and stackelbewrg it turns out that in both cases the player with the smaller unit costs is able to choose a higher catch rate than his opponent furthermore it is shown that the game is stackelberg dominant in the stackelberg case any information disadvantage in the sense of stackelberg fellowership can be eliminated by a more efficient technology

the relevance of standard estimates of rates of return to schooling for education policy a critical assessment abstract this paper examines the accuracy and usefulness of estimated rates of return to schooling based on the standard human capital model of becker and mincer regarding accuracy it investigates whether failure to account for differences in ability and school quality lead to significant biases estimates using ghanaian data confirm this possibility even when accurate estimated rates of return to additional years of schooling may have limited policy implications more useful for governments are rates of return to investments in school quality the paper uses data on cognitive skills to estimate rates of return to three types of school quality improvements

africa s education enigma the nigerian story abstract in the last two decades the social and economic benefits of formal education in sub saharan africa have been debated anecdotal evidence points to low returns to education in africa unfortunately there is limited econometric evidence to support these claims at the micro level in this study i focus on nigeria a country that holds 1 5 of africa s population i use instruments based on the exogenous timing of the implementation and withdrawal of free primary education across regions in this country to consistently estimate the returns to education in the late 1990s the results show the average returns to education are particularly low in the 90s in contrast to conventional wisdom for developing countries 2 8 for every extra year of schooling between 1997 and 1999 surprisingly i find no significant differences between ols and iv estimates of returns to education when necessary controls are included in the wage equation the low returns to education results shed new light on both the changes in demand for education in nigeria and the increased emigration rates from african countries that characterized the 90s

schooling information and nonmarket productivity contraceptive use and its effectiveness information from two u s fertility surveys on couples knowledge about and use of specific contraceptives are used to estimate the technology of human reproduction in order to examine the association between schooling and productivity in the household sector the results indicate that more schooled couples have a wider knowledge of contraceptive methods use more efficiently those contraceptive methods for which there is little information and large scope for misuse and are better able to mitigate the effects of their biological constraints fecundity on their fertility compared to less schooled couples excerpt

consumer surplus enhancing cooperation in a natural resource oligopoly abstract in this study we use a differential game to illustrate that cooperation among oligopolists selling a common pool renewable resource may lead not only to higher industrial output consumer surplus and resource stock in the stationary equilibrium but also a greater discounted sum of consumer surplus a priori this finding is not straightforward an increase in the coefficient of cooperation causes industry output to first decrease and then increase over time thus making consumers worse off in the short run and better off in the long run this study establishes the conditions under which the long run effects outweigh the short run effects of cooperation leading to an increase in the discounted sum of consumer surplus our analysis suggests that in some cases conservation cartels should be promoted on the basis of not only resource conservation but also efficiency

understanding swedish social democracy victims of success the economic policies of swedish social democrats were not the product of one centralized authority but rather a series of initiatives influenced by many political actors and inspired by egalitarian preferences we focus on three policy areas first the welfare state is a central achievement of social democracy although its expansion is over it has cemented social democracy s position in power and is still popular among the electorate second the labour market model is in crisis the centralized rehn meidner model is not working coordination of wage bargaining has turned out to be difficult and the trade unions radical politics of the 1970s alienated swedish employers from social concertation finally macroeconomic management has had to struggle with inflationary pressures and the overheating of the late 1980s and the subsequent deflationary shock led to a sharp increase in unemployment in the 1990s many of these problems are related to social democracy s internal strains copyright 1998 by oxford university press

human capital vs signalling explanations of wages increases wages by directly increasing the worker s productivity this learning explanation is usually associated with human capital theory however it seems unlikely that learning explains all the wage differences associated with schooling and work history better educated workers are not a random sample of workers they have lower propensities to quit or to be absent are less likely to smoke drink or use illicit drugs and are generally healthier it is unlikely that employers make full use of differences in propensities to quit or to be absent or sick when hiring workers these characteristics are often not directly observed and the americans with disabilities act precludes firms from using either poor health or the likelihood of future sickness as a hiring criterion unless it is directly related to job performance however if low levels of education are associated with these unfavorable employee characteristics and employers are allowed to take education into account when hiring workers we would expect employers to favor better educated workers as a means of reducing their costs of sickness and job turnover in turn students will take these hiring criteria into account when deciding how long to stay in school students will choose a length of schooling to signal their ability to employers and employers will demand a minimum level of schooling

note on nash and stackelberg solutions in a differential game model of capitalism abstract pohjola 1983 derives open loop stackelberg solutions for the lancaster 1973 model of capitalism and compares the outcomes with the open loop nash outcome due to a shortcoming in the analysis only one open loop stackelberg solution with the workers as leader was found this note shows that there are in fact infinitely many solutions furthermore these solutions can be derived with standard optimal control techniques

capital accumulation and income distribution as the outcome of a dynamic game abstract this paper presents a model of an economy with two representative agents a capitalist and a worker who play an infinite horizon dynamic game about income distribution we consider three types of equilibria which correspond to joint price taking walrasian equilibrium and to wage setting by either the capitalist capitalistic equilibrium or the worker laborist equilibrium for the last two of them an inefficient feedback stackelberg solution is first analyzed afterwards we apply a version of the folk theorem and obtain a wide range of sustainable efficient equilibria one of which coincides with the nash bargaining solution

can negotiations prevent fish wars abstract the standard alternating offer model is extended by integrating it with the levhari and mirman fish war model in order to investigate negotiations over fish quota the disagreement actions are endogenous the interior and linear markov perfect equilibrium mpe results in immediate agreement on an efficient path of fish quota this mpe is not analytically tractable numerical solutions show that patience is a disadvantage in this mpe and small differences in patience lead to large asymmetries in the bargaining outcome

a dynamic game of waste management abstract the paper studies a differential game of waste management disposal each of three neighbouring regions is endowed with a stock of waste but no additional waste is generated in any region and waste does not decay from natural reasons a region s stock of waste can be reduced only by dumping on its neighbours the model features two externalities a strategic externality caused by the fact that the payoff of a coalition depends on the actions of players outside the coalition and a stock externality caused by the fixed overall amount of waste the game has a finite time horizon and it is shown that intertemporal core theoretic cooperation can be sustained under intuitive conditions

the quality of schooling quantity alone is misleading although much research discusses the quantity of schooling as an effective impact on productivity and earnings most such research leaves out the idea of the quality of schooling which may cause biases in the estimated returns to schooling this paper consequently attempts to extend the standard mincerian approach to incorporate school quality as well as quantity it demonstrates how exclusion of quality in the standard procedure may cause biases in the estimated returns to years of schooling probably in the upward direction the paper explores the implications of this extension of the standard model for the case of young brazilian males it shows that the estimate of the private return to years of schooling using the preferred quality inclusive specification is only one half the estimate using the standard procedure indicating substantial upward bias in the standard estimates it further outlines a method for estimating a social return to quality and finds that it exceeds substantially the social return to quantity the paper then shows why this in turn suggests there may be an equity productivity trade off in schooling investments

earnings schooling ability and cognitive skills conventional estimates now available for a large number of countries generally indicate that the social returns to education are positive large and competitive with returns to investment in physical capital that such estimates are good guides for public resource allocation has however been questioned the heart of the problem lies in the interpretation of the positive relationship between the education and the earnings of workers whether as the conventional estimates assume the coefficient of the education variable in the earnings function measures the effect on the productivity of workers of human capital acquired in school it has been hypothesized that education in part or instead represents screening for native ability and motivation or credentialism and that as a consequence conventional measures of the social benefit of education are substantially upward biased 2 in this paper we attempt to distinguish the influence on earnings of cognitive achievement native ability and years of education as a means of adjudicating the human capital screening and credentialist hypotheses our econometric analysis is based on two rigorously comparable micro data sets from kenya and tanzania generated by surveys of the urban wage labor force specifically for this study these data sets contain the usual variables found in earnings function estimates of the benefits of schooling individual earnings years of education and years of employment experience in addition they contain two variables measures of the worker s cognitive skills and of his or her reasoning ability not previously found in studies of developing countries and only rarely found in studies of the education earnings relationship in developed countries 3 with these variables we can estimate the direct effects on earnings of cognitive skills ability and years of schooling by using them to estimate educational production functions and educational attainment functions and linking these functions with the earnings function in a recursive framework we can also assess the various indirect effects on earnings of ability and years of schooling having data sets from two countries very similar with respect to size resource endowments structure of production and employment and level of development means that not only can we subject our results to the usual statistical tests but we can also assess their replicability both kenya and tanzania have nearly achieved the objective of universal primary education while university enrollments remain at less than 1 percent of the relevant age group the important policy issues re boissiere development research department the world bank 1818 h street washington d c 20433 knight institute of economics and statistics oxford university sabot williams college williamstown ma 01267 we are grateful to the educational testing service of princeton for the design of tests used in this study and to j armitage j behrman j hausman d hendry d jamison and an anonymous referee for their insights and advice helpful comments were also received from participants in seminars at oxford and yale universities the views presented here are our own they should not be interpreted as reflecting those of the world bank george psacharopoulos 1973 1981 contains a listing of 44 countries in which rate of return studies had been conducted and of the estimates obtained 2for instance kenneth arrow 1973 mark blaug 1976 samuel bowles and herbert gintis 1976 john riley 1979 michael spence 1976 and lester thurow 1975 3for attempts to control for ability and or for cognitive achievement in studies for the united states see jere behrman et al 1980 gary chamberlain and zvi griliches 1977 griliches and william mason 1972 michael olneck 1977 paul taubman and terence wales 1974 taubman 1975 and david wise 1975 see also the survey articles by griliches 1977 1979 in most instances the data refer to special subgroups in the population and clear distinction cannot be made between natural ability and cognitive skills acquired in school

optimal redistributive capital taxation in a neoclassical growth model abstract this paper provides a counterexample to the simplest version of the redistribution models considered by judd 1985 in which the government chooses an optimal distortionary tax on capitalists to finance a lump sum payment to workers i show that the steady state optimal tax on capital income is generally non zero when the capitalists utility is logarithmic and the government faces a balanced budget constraint with log utility agents optimal decisions depend solely on the current rate of return not any future rates of return or tax rates this feature of the economy effectively deprives the government of a useful policy instrument because promises about future tax rates can no longer influence current allocations when combined with a lack of other suitable policy instruments such as government bonds the result is an inability to decentralize the allocations that are consistent with a zero limiting capital tax i show that the standard approach to solving the dynamic optimal tax problem yields the wrong answer in this knife edge case because it fails to properly enforce the constraints associated with the competitive equilibrium specifically the standard approach lets in an additional policy instrument through the back door

the icelandic banking crisis a reason to rethink csr in the fall of 2008 the three largest banks in iceland collapsed with severe and lasting consequences for the icelandic economy this article discusses the icelandic banking crisis in relation to the notion of corporate social responsibility csr it explores some conceptual arguments for the position that the icelandic banking crisis illustrates the broad problem of the indeterminacy of the scope and content of the duties that csr is supposed to address in particular it is suggested that the way the banks in question conceived of csr i e largely in terms of strategic philanthropy was gravely inadequate it concludes by proposing that the case of the icelandic banking crisis gives us a reason to rethink csr

returns to investment in education a global update the author updates compilations of rate of return estimates to investment in education published since 1985 and discusses methodological issues surrounding those estimates some key patterns among the three main levels of education primary education continues to exhibit the highest social profitability in all world regions private returns are considerably higher than social returns because of the public subsidization of education the degree of public subsidy increases with the level of education which is regressive social and private returns at all levels generally decline by the level of a country s per capita income overall the returns to female education are higher than those to male education but at individual levels of education the pattern is more mixed the returns to the academic secondary school track are higher than the vocational track since unit cost of vocational education is much higher and the returns for those who work in the private competitive sector of the economy are higher than in the public noncompetitive sector and the returns in the self employment unregulated sector of the economy are higher than in the dependent employment sector controversies in the literature are discussed in the light of the new evidence the undisputable and universal positive correlation between education and earnings can be interpreted in many ways the causation issue on whether education really affects earnings can be answered only with experimental data generated by randomly exposing different people to various amounts of education given the fact that moral and pragmatic considerations prevent the generation of such pure data researchers have to make do with indirect inferences or natural experiments some have been attempted the author looks at the research on overeducation or surplus schooling the conclusions reinforce earlier patterns they confirm that primary education continues to be the number one investment priority in developing countries they also show that educating females is marginally more profitable than educating males that the academic secondary school curriculum is a better investment than the technical vocational tract and that the returns to education obey the same rules as investment in conventional capital that is they decline as investment is expanded