Education Economics and Policy (ECON 321)

2020 Spring
Faculty of Arts and Social Sciences
6.00 / 6.00 ECTS (for students admitted in the 2013-14 Academic Year or following years)
Abdurrahman Bekir Aydemir,
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Formal lecture,Interactive lecture
Interactive,Communicative,Discussion based learning,Case Study
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The role and value of education in the economy; human capital accumulation and economic growth; private and public financing of education; private and social returns to education; schooling quality and educational production; access to education; signaling; non-pecuniary benefits of education; income distribution, equality and social cohesion; performance management and indicators in the education sector, public intervention tools (vouchers, conditional cash transfers, loans).


The objective of this course is to provide an introduction to economic analysis of the investment in and provision of education, as well as evaluation of education policies. Theoretical models of an individual's decision to attain any level of education and a society's consideration to finance education will be discussed and linked to empirical evidence.


Course-Specific Skills:
On completion of the course, students should be able to
a) understand to what extent human capital formation and thus education improves welfare of a society.
b) discover existing and potential problems for individuals to acquire a better education
c) gain an appreciation of the problems faced by policy makers
d) understand the methods of applied and theoretical economics in the context of the provision and demand for education and training.
e) apply theoretical and quantitative methods to the analysis of current and historical educational policies
Individual and Key Skills:
a) develop skills of reading papers concerning the issues of education,
b) prepare critical presentations of the papers written by others,
c) investigate a problem of their choosing in depth.


1. Understand the world, their country, their society, as well as themselves and have awareness of ethical problems, social rights, values and responsibility to the self and to others. 5

2. Understand different disciplines from natural and social sciences to mathematics and art, and develop interdisciplinary approaches in thinking and practice. 4

3. Think critically, follow innovations and developments in science and technology, demonstrate personal and organizational entrepreneurship and engage in life-long learning in various subjects. 4

4. Communicate effectively in Turkish and English by oral, written, graphical and technological means. 5

5. Take individual and team responsibility, function effectively and respectively as an individual and a member or a leader of a team; and have the skills to work effectively in multi-disciplinary teams. 4

1. Develop knowledge of theories, concepts, and research methods in humanities and social sciences. 4

2. Assess how global, national and regional developments affect society. 5

3. Know how to access and evaluate data from various sources of information. 5

1. Provide constructive analysis of economic phenomena at the national and international level, and interactions between the two. 4

2. Develop an understanding of organizations and institutions in the society as well as their influence on the economy. 4

3. Recognize how incentives shape the behavior of individuals and organizations. 4

4. Identify ?economic? problems and propose alternative models and/or design and conduct research to provide viable solutions using theoretical tools and/or quantitative methods. 5

5. Communicate problems and solutions to managerial and policy decision-making units as well as to lay audiences. 5


  Percentage (%)
Final 30
Term-Paper 30
Written Report 20
Presentation 20



1. Introduction
Main Reading
? Brewer, D. J., Hentschke G. C. andEdie, E. (2008). ?The Role of Economics in Education Policy Research.? in Handbook of Research in Education Finance and Policy, (eds.) H. F. Ladd and E. B. Fiske, Routledge, New York.
? de la Fuente, A. and Ciccone, A. (2002). "Human Capital and Growth in a Global and Knowledge-Based Economy." Report for the European Commission, Directorate-General for Employment and Social Affairs.
? Patrinos, H.A. (2000). "Market forces in education." European Journal of Education, 35, pp. 61-80
? Psacharopoulos, G. and Patrinos, H. A. (2004). "Returns to investment in education: a further update." Education Economics, 12, pp. 111-134.
2. Human Capital
Main Reading
? Bedard, K. (2001). "Human Capital versus Signaling Models: University Access and High School Dropouts." Journal of Political Economy, 109, pp. 749-775.
? Checchi, D. (2008). "Chapter 2." The Economics of Education. Cambridge University Press, Cambridge, UK.
Additional Reading
? Becker, G. (1962). "Investment in human capital: A theoretical analysis." Journal of Political Economy, 70, 9-49.
? Spence, M. (1973). "Job market signaling." Quarterly Journal of Economics, 87, 355-374.
? Weiss, A. (1995). "Human capital vs. signaling explanation of wages." Journal of Economic Perspectives, 9, 133-154.
3. Returns to schooling
Main Reading
? Card, D. (2000). "The causal effect of education on earnings." Handbook of Labor Economics, Vol. 3, (eds.) O. Ashenfelter and D. Card, pp. 1801-1862.
? Angrist, J. and A. Krueger (1991). "Does compulsory school attendance affect schooling and earnings?" Quarterly Journal of Economics, 979-1015.
? Bonjour, D., Cherkas, L., Haskel, J. Hawkes, D. and Spector, T. (2002). ?Returns to Education: Evidence from UK Twins.? Discussion paper no 22, Centre for the Economics of Education. London School of Economics and Policy Studies.
? Glocker, D. and V. Steiner (2011). " Returns to Education across Europe." Centre for Economic Policy Research Discussion Paper No.:8568.
? Brown, S. and Sessions, J. (2006). ?Evidence on the relationship between firm-based screening and the returns to education?, Economics of Education Review 25, p498-509.
Additional Reading
? Card, D. (2001). "Estimating the return to schooling: progress on some presistent econometric problems." Econometrica, 69, 1127-1160.
? Mincer J. (1974). Schooling, experience and earnings, Columbia University Press, NY.
? Maurin E. and McNally S. (2008). "Vive la Révolution ! Long Term Returns of 1968 to the Angry Students." Journal of Labor Economics, 26, 1-35.
? Weale M. (1993). "A Critical evaluation of Rate of Return Analysis" The Economic Journal 103, pp. 729-737.
4. Demand for education and liquidity constraints
Main Reading
? Acemoglu, D. and Pischke, J-S. (2001). "Changes in the wage structure, family income, and children's education.", European Economic Review, 45, 890-904.
? Cameron, S. and Taber, C. (2004). "Estimation of educational borrowing constraints using returns to schooling." Journal of Political Economy, 112, 132-182.
? Dearden, Emmerson, Frayne and Meghir (2005) "Education subsidies and school drop-out rates." IFS working paper 05/11, June.
? Dynarski, S. (2003). "Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion" American Economic Review, 93, 279-288.
Additional Reading
? Becker, G. and Tomes, N. (1986). "Human capital and the rise and fall of families." Journal of Labour Economics, 4, S1-S39.
? Keane M. (2002) " Financial aid, borrowing constraints and college attendance: evidence from structural estimates", American Economic Review, 92, 293-297.
? Keane M. and Wolpin K. (2001). "The effect of parental transfers and borrowing constraints on educational attainment", International Economic Review, 42, 1051-1103.
5. Economic Growth and the Role of Education
Main Reading
? Barro, R. (1991). "Economic growth in a cross-section of countries." Quarterly Journal of Economics, 106, 407-443.
? Mankiw, G., Romer, D. and Weil, D. (1992). "A contribution to the empirics of economic growth." Quarterly Journal of Economics, 107, 407-437.
? Bils, M. and Klenow, P. (2000). "Does schooling cause growth." American Economic Review, 90, 1160-1183.
? Hanushek, E. and Wossmann, L.(2007). "The Role of Education Quality in Economic Growth." World Bank Policy Research Working Paper 4122.
? Pritchett, L. (2001). "Where has all the education gone?" The World Bank Economic Review, 15, 367-391.
? Temple, J. (2001). "Growth effects of education and social capital in the OECD countries." OECD Economic Studies, 33.
Additional Reading
? Barro, R. and Lee, J. (1993). International comparisons of educational attainment." Journal of Monetary Economics, 32, 363-394.
? Benhabib, J. and and Spiegel, M. (1994). "The role of human capital in economic development. Evidence from aggregate cross-country data." Journal of Monetray Economics, 34, 143-173.
? Pritchett, L. (2009). "Does Schooling help explain any of the big facts about growth?" mimeo, 20- 20Papers.html.
6. Social returns to education and over-education
Main Reading
? Acemoglu, D. and J. Angrist (2000). "How large are human capital externalities? Evidence from compulsory schooling laws." NBER Macroeconomic Annual, 15, 9-59.
? Canton, E. (2007). "Social Returns to Education: Macro-Evidence." De Economist, 155, pp. 449-468.
? McGuinness, S. (2006). "Overeducation in labour market." Journal of Economic Surveys, 20, 387-412.
? Moretti, E., (2004b). "Estimating the social return to higher education: evidence from longitudinal and repeated cross-sectional data." Journal of Econometrics,121, 175-212.
Additional Reading
? Quinn, M.A. and S. Rubb (2006). "Mexico?s labor market: The importance of education-occupation matching on wages and productivity in developing countries." Economics of Education Review, 25, 147-156.
7. Non-pecuniary benefits of education
Main Reading
? Cutler, D. and A. Lleras-Muney (2006). ?Education and Health: Evaluating Theories and Evidence.? NBER Working Paper.
? Fougère, D. F. Kramarz, J. Pouget (2008). ?Youth Unemployment and Crime in France.? The Journal of the European Economic Association.
? Jacob, B. and Lefgren, L. (2003). "Are Idle Hands the Devil's Workshop? Incapacitation, Concentration and Juvenile Crime." American Economic Review 93, 1560-1577.
? Oreopoulos, P. (2007). ?Do dropouts drop out too soon? Wealth, health and happiness from compulsory schooling.? Journal of Public Economics, 91, pp. 2213-2229.
Additional Reading
? Arendt, J.N. (2005), ?Does Education Cause Better Health? A Panel Data Analysis Using School Reforms for Identification.? Economics of Education Review 24, pp. 149-160.
? Becker, G.S. (1968) "Crime and Punishment: An Economic Approach" The Journal of Political Economy, 76, 169-217.
? Grossman, M. (1972). ?On the concept of health capital and the demand for health.? Journal of Political Economy, 80, 223-55.
? Lochner, L. (2004). ?Education, work, and crime: A human capital approach.? International Economic Review, 45, 811-843.
8. Education Production Function and Class Size
Main Reading
? Hanushek, E. (1986). "The Economics of Schooling: Production and E?ciency in Public Schools." Journal of Economic Literature, 24, pp. 1141?1177.
? Angrist, J. and Lavy, V. (1999). "'Using Maimonides' rule to estimate the effect of class size on student achievement.? Quarterly Journal of Economics, 114, pp. 535-575.
? Hanushek, E.A. (2003). "The Failure of Input-Based Resource Policies." The Economic Journal 113, pp. F64-F98.
? Krueger, A. (1999). "Experimental Estimates of Education Production Functions" Quarterly Journal of Economics, 114, pp 497-532.
? Krueger, A. (2003). "Economic Considerations and Class Size." The Economic Journal 113, pp. F34-F63.
Additional Reading
? Bishop, J. H. and Wössmann, L. (2004). "Institutional Effects in a Simple Model of Educational Production." Education Economics, 12, pp. 17-38.
? Hanushek, E. (2007). "Education Production Functions." Palgrave Encyclopedia.
? Hattie, J. (2005) ?The paradox of reducing class size and improving learning outcomes.? International Journal of Educational Research, 43, pp. 387-425.
? Hoxby, C. M. (2000). ?The Effects of Class Size on Student Achievement: New Evidence from Population Variation.? Quarterly Journal of Economics 115, pp. 1239-1285.
? Lazear, E. (2001). "Educational Production." The Quarterly Journal of Economics, 116, pp. 777?803.

9. Peer Effects
Main Reading
? Ammermueller, A. and J.-S. Pischke (2009). ?Peer Effects in European Primary Schools: Evidence from PIRLS.? Journal of Labor Economics 27, pp. 315-348.
? Angrist, J.D. and Lang, K. (2004). ?Does School Integration Generate Peer Effects? Evidence from Boston's Metco Program.? American Economic Review, 94(5), pp. 1613-1634.
? Figlio, D. N. (2005). ?Boys Named Sue: Disruptive Children and their Peers,? NBER Working Paper No. 11277.
? Hattie, J., (2002). ?Classroom composition and peer effects.? International Journal of Educational Research, 37, pp. 449-481.
Additional Reading
? Hoxby, C.M. (2000) "Peer Effects in the Classroom: Learning from Gender and Race Variation," NBER Working Paper No. 7867.
? Sacerdote, B. (2001) "Peer Effects with Random Assignment: Results for Dartmouth Roommates," Quarterly Journal of Economics 116, pp. 681-704.
10. Teachers
Main Reading
? Corcoran, S., W. Evans, and R. Schwab (2004). ?Changing Labor-Market Opportunities for Women and the Quality of Teachers, 1957-2000.? The American Economic Review, 94, pp. 230?235.
? Lavy, V. (2004). ?Performance Pay and Teachers? Effort, Productivity and Grading Ethics.? NBER Working Paper No. 10622.
? Rockoff, J. E. (2004), "The impact of individual teachers on student achievement: Evidence from panel data", American Economic Review 94, pp. 247-252.
? Rothstein, J. (2010). ?Teacher Quality in Educational Production: Tracking, Decay, and Student Achievement." Quarterly Journal of Economics,
Additional Reading
? Jacob, B. and L. Lefgren. (2004). ?The Impact of Teacher Training on Student Achievement: Quasi-Experimental Evidence from School Reform Efforts in Chicago.? Journal of Human Resources, 39, pp. 50-79.
? Loeb, S. and Page, M. (2000). ?Examining the Link between Teacher Wages and Student Outcomes: The Importance of Alternative Labor Market Opportunities and Non-Pecuniary Variation.? The Review of Economics and Statistics, 82 pp. 393?408.
? Van Ewijk, R. (2009). "Same work, lower grade? Student ethnicity and teachers' subjective assessments", Economics of Education Review, 30, pp. 1045-1058.

11. School Competition and Financing Education
Main Reading
? Angrist, et. al. (2002). "Vouchers for Private Schooling in Columbia: Evidence from a Randomized Natural Experiment." American Economic Review 92, pp. 1535-58.
? Gibbons, S., Machin, S. and Silva, O. (2006) "Competition, Choice and Pupil Achievement." Centre for the Economics of Education Discussion Paper 56.
? Hoxby, C. (2000) "Does Competition Among Public Schools Benefit Students and Taxpayers?" American Economic Review 90(5), pp. 1209-1238.
? Taylor, Lori L. (1999). ?Government?s Role in Primary and Secondary Education,? Federal Reserve Bank of Dallas Economic Review, First Quarter 1999, pages 15-24.
Additional Reading
? Belfield, C. and Levin, H. (2002). ?The Effects of Competition Between Schools on Educational Outcomes: A Review for the United States.? Review of Educational Research, 72, pp. 279-341.
? Burgess, S. and Slater, H. (2006) "Using Boundary Changes to Estimate the Impact of School Competition on Test Scores." CMPO Working Paper Series No. 06/158,
? Card, D. and A. Payne (2002) "School Finance Reform, the Distribution of School Spending, and the Distribution of Student Test Scores," Journal of Public Economics, 83, pp. 49-82.Epple D. and Romano R. (1998) "Competition between private and public schools, vouchers and peer group effects" American Economic Review, vol. 88, p. 33-62.
? Gibbons, S., and S. Machin. 2006. "Paying for primary schools: Admission constraints, school popularity or congestion?" Economic Journal 116, no. 510: C77?92.
? Hoxby C. (2005) "Competition among public schools : A Reply to Rothstein", NBER Working Paper 11216.
? Ladd, H. (2002) "School Vouchers: A Critical View" Journal of Economic Perspectives 16(4), pp. 3-24.
? Neal, D. (2002) "How Vouchers Could Change the Market for Education." Journal of Economic Perspectives 16(4), pp. 25-44.
? Rothstein J. (2005) "Does competition among public schools benefit students and taxpayers ? A Comment on Hoxby (2000)", NBER Working Paper 11215.
? West, M.R., and L. Woessmann. 2010. "Every Catholic child in a Catholic school?: Historical resistance to state schooling, contemporary school competition, and student achievement across countries." Economic Journal 120, no. 546: F229?55.

12. School Choice
Main Reading
? Cullen, J. B., Jacob, B. A. and Levitt S. D. (2006). ?The effect of school choice on participants: Evidence from randomized lotteries.? Econometrica, 74, pp. 1191?230.
? Holmes G., Desimone J. and Rupp N. (2003) "Does school choice increase school quality ?" NBER Working Paper 963.
? Hoxby C. (2002) "School choice and school productivity (or could school choice be a tide that lifts all boats)." NBER Working Paper 8873.
? Urquiola M. (2005) "Does school choice lead to sorting? Evidence from Tiebout variation." American Economic Review, September, vol. 95, p. 1310-1326.
Additional Reading
? Galindi-Rueda, F. and Vignoles, A. (2005). ?The Heterogeneous Effect of Selection in Secondary Schools: Understanding the Changing Role of Ability.? Centre for the Economics of Education Discussion Paper 52. (
? Hsieh C. and Urquiola M., "The effects of generalized school choice on achievement and stratification: Evidence from Chile's school voucher program." Journal of Public Economics, forthcoming.
13. Incentives in Education
Main Reading
? Angrist, J.D and A.B. Krueger (1991) ?Does Compulsory School Attendance Affect Schooling and Earnings?? The Quarterly Journal of Economics, 106, pp. 979-1014.
? Bandiera, O. and V. Larcinese and I. Rasul (2009) "Blissful Ignorance? Evidence From a Natural Experiment on The Effect of Individual Feedback on Performance."
? Dee, T.S., and B. Jacob (2006). "Do High School Exit Exams Influence Educational Attainment or Labor Market Performance." NBER Working Paper 12199.
? Hanushek, E. and M. Raymond. (2004) "Does School Accountability Lead to Improved Student Performance?" NBER Working Paper 10591.
Additional Reading
? Angrist, J.D. and V. Lavy. (2004). ?The Effect of High Stakes High School Achievement Awards: Evidence from a School-Centered Randomized Trial.? IZA Working Paper 1146.
? Bettinger, E. (2008) Paying to Learn: The Effect of Financial Incentives on Elementary School Test Scores.
? Bettinger, E. and R. Slonim (2007) "Patience among children" Journal of Public Economics, 91, 343-363.
? Kane, T. and D. Staiger (2002). "Volatility in school test scores: Implications for test-based accountability systems." Brookings Papers on Education Policy, pp. 235-283.
? Kremer, M., E. Miguel, and R. Thornton (2008). "Incentives to Learn." Review of Economics and Statistics.
? Lavy, V. (2002) Evaluating the effect of teachers' group performance incentives on pupil achievement, Journal of Political Economy 110(6), pp. 1286-1317.
? Lazear, E. (2000) _Performance Pay and Productivity,_ American Economic Review 90(5), 1346-1361
? Leuven, E., H. Oosterbeek, and B. Van der Klaauw. "The effect of financial rewards on students achievement: Evidence from a randomized experiment", forthcoming Journal of the European Economic Association.
? Muralidharan K. and V. Sundararaman (2009) "Teacher Performance Pay: Experimental Evidence from India."
? Podgursky, M.J. and M.G. Springer (2007) "Teacher performance pay: A review." Journal of Policy Analysis and Management 26(4), 909-949.
14. Policy Evaluation
Main Reading
? Aakvik, A., Salvanes K.G. and Vaage, K. (2010). "Measuring heterogeneity in the returns to education using an education reform." European Economic Review, 54, pp. 483?500.
? Black, S.E., P.J. Devereux, and K.G. Salvanes. 2008. Staying in the classroom and out of the maternity ward? The effect of compulsory schooling laws on teenage births. Economic Journal 118, no. 530: 1025?54.
? Brunello, G., M. Fort, and G. Weber. 2009. Changes in compulsory schooling, education and the distribution of wages in Europe. Economic Journal 119, no. 536: 516?39.
? Schlotter, M., Schwerdt, G. and Woessmann, L. (2011). "Econometric methods for causal evaluation of education policies and practices: a non?technical guide." Education Economics, 19, pp. 109-137.
Additional Reading
? Angrist, J.D. 2004. American education research changes tack. Oxford Review of Economic Policy 20, no. 2: 198?212.
? Angrist, J.D. and V. Lavy. (2004). ?The Effect of High Stakes High School Achievement Awards: Evidence from a School-Centered Randomized Trial.? IZA Working Paper 1146.
? Becker, S.O., and A. Ichino. 2002. Estimation of average treatment effects based on propensity scores. Stata Journal 2, no. 4: 358?77.
? Behrman, J.R., and M.R. Rosenzweig. 2002. Does increasing women?s schooling raise the schooling of the next generation? American Economic Review, 92, pp. 323?34.
? Belfield, C.R., M. Nores, S. Barnett, and L. Schweinhart. 2006. The High/Scope Perry Preschool Program. Journal of Human Resources 41, no. 1: 162?90.
? Duflo, E., Dupas. P., and Kremer, M. (2011). "Peer Effects, Teacher Incentives, and the Impact of Tracking: Evidence from a Randomized Evaluation in Kenya." American Economic Review, 101, pp. 1739?1774.
? Duflo, E. (2001). "Schooling and labor market consequences of school construction in Indonesia: Evidence form an unusual policy experiment." American Economic Review, 91, pp. 795-813.
? Dynarski, S.M. 2003. Does aid matter? Measuring the effect of student aid on college attendance and completion. American Economic Review 93, no. 1: 279?88.
? Hanushek, E.A., and M.E. Raymond. 2004. The effect of school accountability systems on the level and distribution of student achievement. Journal of the European Economic Association 2, nos. 2?3: 406?15.
? Hanushek, E.A., and L. Woessmann. 2006. Does early tracking affect educational inequality and performance? Differences-in-differences evidence across countries. Economic Journal 116, no. 510: C63?76.
? Heckman, J. J. and Vytlacil, E. (2005). "Structural equations, treatment effects, and econometric policy evaluation." Econometrica, 73, pp. 669?738.
? Ichino, A., and R. Winter-Ebmer. 2004. The long-run educational cost of World War II. Journal of Labor Economics 22, no. 1: 57?86.
? Kremer, M. 2003. Randomized evaluations of educational programs in developing countries: Some lessons. American Economic Review 93, no. 2: 102?106.
? Machin, S.J., and S. McNally. 2007. New technology in schools: Is there a payoff? Economic Journal 117, no. 522: 1145?67.
? Schneider, B., M. Carnoy, J. Kilpatrick, W.H. Schmidt, and R.J. Shavelson. 2007. Estimating causal effects using experimental and observational designs: A think tank white paper. Washington, DC: American Educational Research Association.