Signalling Model and Online Education

Bryan Caplan discusses the prospects for online education under a signalling model of education:

Perspective #3: Signaling model.

Analysis: Brick-and-mortar colleges are primarily places where students signal a combination of intelligence, conscientiousness, and conformity.  Online education suffers from a severe adverse selection problem, because the students most eager to avoid traditional education tend to be deficient in one or more of these traits – especially conformity to the established social norm that young people should go to a traditional college.

Prediction: Brick-and-mortar colleges are here to stay.  Online education may be a niche good, but the labor market will usually penalize its graduates with a low wage premium.

I’m not convinced by this story. As Caplan’s co-blogger Arnold Kling notes

Something that is a status good in one era can be the opposite in another.

I don’t think Caplan’s signalling model, by itself, predicts the failure of online education.

Once upon a time Greek and Latin used to be an important part of the curriculum. In Caplan’s story, they should never have dropped out of the curriculum, because students who failed to take these courses would not have been signalling their intelligence, conscientiousness, and conformity. Yet today, classics education is not at all a prerequisite for a successful career.

If Harvard decided tonight that all of its classes would henceforth be online, would it make sense for businesses to infer that its identical student body had failed to signal “a combination of intelligence, conscientiousness, and conformity”? What if Harvard (more reasonably) gradually transitioned to an increased reliance on online education over the course of many decades, while maintaining the same admissions/tuitions/grading structure?

Wouldn’t the proper inference be that the Harvard students were still the same highly intelligent, conscientious, and conforming group of people they were before the switch/transition, while students at low-end online schools were not? Signalling is currently institution-specific. The signalling model doesn’t by itself provide any reason to believe that online education should be any different.

Perhaps the signalling model in conjunction with another model, like the status-good model could provide a better explanation for the future failure of online education?

Perspective #2: Status good model.  

Analysis: Online education will soon be a great way to teach marketable skills.  But colleges are primarily places where young elites (and their tuition-paying parents!) bond.  In Arnold’s words:

[G]oing to a top college today is like belonging to the right church in 1850 or the right country club in 1950. When you are supplying a status good, ostentatiously wasting money on buildings can increase demand.

Prediction: Brick-and-mortar colleges are here to stay.  However, online education will easily compete for the segment of students who only want to acquire marketable skills.  Students who opt for online education will earn a wage premium comparable to that of brick-and-mortar grads.

If students in the future who prefer brick-and-mortar colleges as a status good also have higher levels of intelligence, conscientiousness, and conformity, then perhaps a signalling equilibrium prevents the emergence of prestigious online education programs.

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