The future value of universities

12/03/2012 § 1 Comment

What will be the value of going to university in the future? The internet makes it incredibly easy to produce, reproduce, and spread information. I have the Library of Alexandria from my desktop, even from my phone. Why do we need universities?

Of course, universities themselves have noticed the situation. MIT is giving stuff away; New Zealand universities are trying to figure out how to deliver courses over the internet.

I think, paradoxically, that all this free information is good for the future of universities.

Let’s use a simple model. Universities provide graduates with two things: knowledge and signals. The internet provides people with knowledge but no signals. As the internet becomes better, it reduces the cost of producing information. This shifts the information supply curve out and reduces the cost. However, the signal supply curve is unaffected. Therefore, the price of signals relative to information actually increases. The premium for a university degree rises, even for similarly knowledgeable people.

There are two ways this might not be true in the model. First, internet learning can start producing its own signal. This is the point of finding ways to verify people’s identities and work on-line. If you can do that, then you may be able to produce a university-like signal. This will likely involve technology that is more invasive of our privacy. In fact, people may be willing to forgo some privacy in order to have better verification.

Secondly, the demand for information could also shift. What you know rather than where you went to school could become more important. This would require that knowledge become a more important factor of production than whatever signalling represents. However, the importance of networks and agglomeration in the modern economy argues for the reverse. Relationships are still important, and probably becoming more highly valued.

It’s about scarcity. University education is still scarce; information is not. Relative prices will shift to reflect the scarcity.

Universities have always had competition: correspondence schools, public libraries, autodidacticism. None of these has knocked universities off their perch, because none of them produces the same signal. I doubt the internet will, either.

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