Category Archives: Education

Black markets are in everything

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Alex Tabarrok over at Marginal Revolution points out that students at at Austin High School in Austin have given school administrators a lesson in the economics of “candy” prohibition:

When Austin High School administrators removed candy from campus vending machines last year, the move was hailed as a step toward fighting obesity. What happened next shows how hard it can be for schools to control what students eat on campus.
The candy removal plan, according to students at Austin High, was thwarted by classmates who created an underground candy market, turning the hallways of the high school into Willy-Wonka-meets-Casablanca. . .
During the prohibition, one student, who asked not to be identified, said that he sold candy at the school and made as much as $50 in a day.
“It’s all about supply and demand,” said Austin junior Scott Roudebush. “We’ve got some entrepreneurs around here.”
The Austin High administration, which won’t elaborate on how much or little it knew about the candy black market, has since replenished the vending machines with some types of candy.

Thoughts on the regulation of minor league football and basketball

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Several developments over the past month or so have prompted me to think about the National Collegiate Athletic Association‘s regulation of minor league football and basketball. Although it is an unincorporated association that includes many of the best universities in America, the NCAA has developed into a hulking and bloated bureaucracy that is the poster child for ineffective and misguided regulation.
One of the developments that triggered my thinking was the disclosure this past week that one of the best players on each of the University of Texas’ basketball, football and baseball teams had been declared academically ineligible for the spring semester. That’s not much of a return on the astounding $1.6 million a year that UT is currently spending on academic assistance for its athletes.
This UT academic problems come on the heels of the announcement last month that the NCAA — whose rules and regulations manual already resembles the Internal Revenue Code in terms of size and complexity — approved the first phase of a “landmark” academic reform package under which about 30 percent of Division I football teams (including UT’s) would lose scholarships if the reforms were to be implemented immediately. The demand for professors with expertise in developing basket-weaving curricula is going to increase at more than a few NCAA member institutions in response to this latest NCAA initiative.
Meanwhile, partly as a result of the NCAA’s strict regulation of compensation that can be paid to athletes in intercollegiate football and basketball (i.e., essentially scholarships), salaries for college coaches skyrocket at the same time as a black market for compensating college football and basketball players continues to run rampant, despite the NCAA and now the government‘s efforts to curtail it.
Finally, a college baseball game in Houston over the weekend between Rice and Texas A&M during the Minute Maid Classic Baseball Classic drew almost 20,000 fans. That’s right — a college baseball game, in February, drew almost 20,000 fans.
What are we to make of all of this?
Well, a bit of historical perspective helps. For all of its faults, Major League Baseball is the only one of the three major professional sports (football, basketball and baseball) that has capitalized and subsidized a thorough minor league development system. Oh, the NBA has its development league and the NFL has NFL Europe, but both of these ventures pale in comparison to the depth and success of baseball’s minor league system. As a result, it’s relatively rare for a baseball player to play in the Major Leagues without spending at least some time playing minor league baseball. In comparison, relatively few of the players in the NFL or the NBA ever play in NFL-Europe or the NBADL.
The reason for this is not that professional football and basketball players do not need to develop their skills in a minor league. Rather, the reason is that professional football and basketball simply rely on a ready-made minor league systems to develop most of their players — that is, intercollegiate football and basketball.
This odd arrangement arose partly as a result of how professional sports developed in America over the past century. On one hand, professional baseball was already well-established in the late 19th century when intercollegiate football and basketball started taking root. Thus, MLB developed its minor league system as a necessary means to develop its players decades before intercollegiate baseball became popular on college campuses. Intercollegiate baseball has only become a source of player development for professional baseball over the past couple of decades or so, and it is still rare for a college baseball player to go straight from playing college baseball to playing in the Major Leagues.
On the other hand, despite the popularity of the NFL and the NBA today, the success of of those professional sports is still relatively recent in comparison with MLB’s business success over the past century. Until the 1960’s in regard to football, and the 1980’s in regard to basketball, neither professional sport was particularly vibrant financially or as popular with the public as their intercollegiate counterparts. Thus, until relatively recently, neither the NFL nor the NBA has been in a financial position to capitalize a minor league system of player development similar to MLB’s minor league system.
However, now that the NFL and the NBA owners have the financial wherewithal to subsidize viable minor league systems, they have little economic incentive to do so. Inasmuch as the NCAA and its member institutions have transformed intercollegiate football and basketball into a free minor league system for the NFL and the NBA, the owners of professional football and basketball teams have gladly accepted the NCAA member institutions’ generosity.
The arrangement has been extraordinary successful for professional football and basketball owners, who have seen the value of their clubs skyrocket over the past two decades. A substantial part of that increase in value is attributable to avoiding the cost of developing a minor league system, as well as taking advantage of liberal public financing arrangements for the construction of new stadiums and areanas. That latter point is a subject for another day.
In comparison, the NCAA member institutions’ acceptance of minor league professional status has not been nearly as successful. Yes, the top tier of intercollegiate football and basketball programs have had been successful financially, but the athletic programs of most NCAA member institutions struggle financially.
Moreover, almost every NCAA member institution compromises academic integrity at least to some extent in order to attract the best players possible to play on the institution’s football and basketball teams. As a result, respected academics such as UT Chancellor Mark Yudof regularly have to endure troubling scandals (in Yudof’s case, as president of the University of Minnesota) that underscore the tension between the business of minor league professional sports and the academic integrity of NCAA member institutions. The NCAA member institutions’ reaction to these conflicts has generally been to increase regulation with usually unsatisfactory results.
So, what is the solution to this mess? Well, it’s doubtful that more regulation of college football and basketball is the answer. Rather, my sense is that the model for reform is right in the front of the noses of the NCAA member institutions — i.e., college baseball.
Due to MLB’s well-structured minor league system of player development, a baseball player emerging from high school has a choice: Do I accept a moderate compensation level to play professional ball in the minor leagues in the hope of developing to the point of being a highly-paid MLB player? Or do I hedge the risk of not developing sufficiently to play at the MLB level by accepting a subsidized college education while developing my skills playing intercollegiate baseball?
This simple choice is the key difference between intercollegiate football and basketball, on one hand, and intercollegiate baseball on the other. Except for the relatively few high school basketball players who are sufficiently developed to be able to play professional basketball in the NBA or Europe immediately after high school, high school football and basketball players’ only realistic choice for developing the skills to play at the highest professional level is college football or basketball.
Consequently, each year, the NCAA member institutions fall over themselves trying to accomodate a large pool of talented football and basketball players who have little or no interest in collegiate academics. Rather than placing the cost and risk of these players’ development on the professional football and basketball clubs, the NCAA member institutions continue to incur the huge cost of subsidizing development of these players while engaging in the charade that these professional players are really “student-athletes.”
In comparison, most top college baseball teams are generally comprised of two types of players — a few professional-caliber players combined with a greater number of well-motivated student-athletes. That is an attractive blend of players, and the tremendous increase in popularity of college baseball over the past decade reflects the entertaining competition that results from such a player mix. Heck, the college baseball system is structured so well that even a small academic institution can win the National Championship in college baseball.
Nevertheless, transforming the current minor league system in college football and basketball into the college baseball model is going to take fundamental reforms within the NCAA. Primarily, it’s going to require the courage and resilience of the presidents of the NCAA member institutions, who need to stand up and quit being played as patsies by the NFL and NBA owners who prefer to foist the risk of funding and administering minor league systems on to the NCAA member institutions.
Moreover, such a transformation of college football and basketball from entrenched minor league systems will be risky. The quality of play in college football and basketball will suffer a bit, even though the competition likely would not. In time, such a transformation would force both the NFL and the NBA to expand their minor league systems to develop the skills of the pool of physically-gifted athletes who prefer to develop their skills as minor league professionals rather than as college students. Competition from such true minor league football and basketball teams might result in a decrease in popularity of college football and basketball.
However, such a transformation would remove most of the galling incentives to compromise academic integrity and to engage in the black market for compensating players that are rife under the current system. Likewise, once viable professional minor leagues in football and basketball exist, football and basketball players will have the same choice coming out of high school that has generated the well-motivated mix of players that has made college baseball such an entertaining intercollegiate sport over the past decade.
Now that type of choice — rather than the choice of which basket-weaving course to take in order to remain eligible — is the kind of choice that NCAA member institutions should be encouraging.

Markets and college sports

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Before moving to Houston 33 years ago, I was born and raised in Iowa City, Iowa where my late father was a longtime University of Iowa Medical School faculty member.
As with most young folks who grow up in Iowa City, I became immersed in the rather remarkable culture of the University of Iowa Hawkeye sports programs, particularly the football and basketball programs. From 1960 through 1971, I attended virtually every Iowa home football and basketball game. Although I have not found much of a market for my services in this area, I remain one of the relatively few experts on those Iowa programs from that era.
What brings all this up is an interesting situation that has been playing out with regard to the Hawkeye basketball team over the past week. Pierre Pierce, who has started something like 82 or 84 games during his three season career at Iowa, was dismissed from the team because of a squabble with a girlfriend that has resulted in a police investigation. Pierce has not been charged with a crime, but the probable reason that Pierce was dismissed from the team rather than suspended pending the outcome of the investigation is that he had been effectively suspended for a season (i.e., red-shirted for a season) a couple of years ago after copping a plea bargain in connection with aggravated sexual assault charges that had been leveled against him.
In this post, Professor Ribstein — from Hawkeye arch-rival, the University of Illinois — makes the point that markets were already making the UI athletic administration’s job somewhat easier in dismissing Pierce:

It must be tough to drop such a player. A team’s success has huge financial implications for a big-time sports school. But it is, still, a school, and discipline of misconduct is an important part of the educational mission. So there’s a conflict of interest at all management levels (not just the coach), because of conflicting criteria for judging their performance. This sounds to me a lot like the corporate social responsibility debate — profits vs. society.
But I’ve argued that markets sort out these conflicts in the corporate area, and markets seem to be working here, as many at Iowa were expressing displeasure with the school’s failure to act against Pierce.

Professor Ribstein is correct in his analysis, although it is just part of the story. Attendance at Hawkeye basketball games — which has been a tough ticket in Iowa for over 50 years — has diminished to the lowest levels in decades this season, despite the fact that the Hawkeye team is a Top 25 team and, as Professor Ribstein mentions in his post, took number one ranked and undefeated Illinois into overtime last week before losing a close game. As with most markets, a variety of factors is contributing to the declining attendance at Hawkeye basketball games, but no one who knows anything about the Hawkeye culture doubts for a second that the primary reason for the decline is many Hawkeye fans’ disdain for Pierce and his primary supporter, Hawkeye basketball coach Steve Alford. The fascinating element to this is that the Hawkeye fans’ disdain may be as much based on Coach Alford’s limitations in evaluating Pierce’s playing ability as it is on Pierce’s apparent character flaws.
Coach Alford was hired at Iowa six years ago with the promise that he was going to take the traditionally very good Iowa basketball program to the “elite” level of college basketball programs. Unfortunately for Coach Alford, the program has actually gone in the other direction during his tenure, and the latest chapter in the Pierce saga is probably going to be the straw that breaks the camel’s back in pushing the UI administration to buyout his contract and bring in a new coach.
Regardless of whether Coach Alford’s decision to support Pierce was based on alturistic “everyone is entitled to a second chance” principles or more grizzled “the team really needs him” principles, the market for Iowa basketball has firmly rejected Coach Alford’s decision. And interestingly, the market is at least partly rejecting Coach Alford’s competence as an evaluator of basketball talent because, as this excellent analysis points out, the reality is that Coach Alford overrated Pierce as a basketball player and Iowa’s team is likely not going to miss him much:

Pierre Pierce was clearly the focal point of Iowa’s offense through its first seven conference games. Since he scored in such an inefficient fashion, his absence in the offense probably won’t be the crisis some are making it out to be. The team going forward will be more balanced and made up of more efficient scorers, so they should be able to pick up the slack from the fallen star.

Stated simply, Pierce is like the .300 hitter in baseball whose on-base average is only .310 and whose slugging percentage is only .320. Because the non-experts in player evaluation believe that a .300 batting average equates with good hitting, the general public is deceived into thinking that the player is a good hitter despite the fact that the less well known but more important on base average and slugging percentage statistics reflect that the player is far below average. Pierce has a relatively high scoring average because he shoots frequently, but his poor shooting percentage and high turnover rate hurt the team more than his high scoring average contributes to it.
So, not only does the Pierce story intersect, as Professor Ribstein points out, the business of college sports and university corporate governance, it also points to the rather remarkable power of markets in effecting change in the entertainment business. The market for Hawkeye basketball recognizes that Coach Alford’s decision to make the overrated Pierce the focal point of the Hawkeye team reflects his limitations as a coach who will be able to fulfill the market’s expectation that the Iowa program remain at least the traditionally very good program that it has been over the past 50 years. That market is demanding a new (and hopefully better) coach, and it will likely get it.
Meanwhile, the market for Hawkeye football is quite strong as Hawkeye Coach Kirk Ferentz has just hauled in a top recruiting class on the heels of three straight major bowl appearances and Top Ten finishes. Interestingly, Coach Ferentz’s turnaround of the Hawkeye football program has been performed essentially by following the football model of the Super Bowl champion New England Patriots, which emphasizes teamwork and making no player the focal point of the team. Call it the “low risk with high upside” model of building a football program.
Yes, markets truly are in everything.

A refuge from family rejection

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This NY Times article tells the interesting story of a heartbreaking conflict within a family and the Point Foundation‘s efforts to attempt to mitigate the damage that such conflicts can cause. Check it out.

Trouble in Cambridge

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How can anyone on the Harvard faculty or in the Harvard administration not view as a troubling trend this latest episode of, at best, academic sloppiness? To make matters even more dreadful, I’m not sure what’s worse, Tribe’s plagiarism or Dershowitz’s disingenuous defense of it.
Meanwhile, the Harvard Plagiarism Archive has popped up to keep us abreast of these developments.

The futures market for books

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Bill Clinton’s autobiography may be hot, and the Harry Potter series continues to set records, but this National Endowment for the Arts survey indicates that such books are becoming an aberration. The study describes a precipitous downward trend in Americans’ book consumption and a particular decline in the reading of fiction, poetry and drama.
Among its findings are that fewer than half of Americans over 18 now read novels, short stories, plays or poetry; that the consumer pool for books of all kinds has diminished; and that the pace at which the nation is losing readers is accelerating; and that the downward trend is occurring in virtually all demographic areas.
The survey also makes an interesting correlation between readers of literature and those who are socially engaged, noting that readers are far more likely than nonreaders to do volunteer and charity work and go to art museums, performing arts events and ballgames. Of literary readers, 43 percent perform charity work while only 17 percent of nonreaders do.
The Census Bureau study upon which the survey was based measured the number of adult Americans who attended live performances of theater, music, dance and other arts; visited museums; watched broadcasts of arts programs; or read literature in the past year. The survey sample ? 17,135 people ? is one of the largest studies ever conducted on the subject of arts participation, and the data was compared with similar studies from 1982 and 1992.
In the literature segment of the study, respondents were asked whether they had, during the previous 12 months, without the impetus of a school or work assignment, read any novels, short stories, poems or plays in their leisure time. Their answers show that just over half ? 56.6 percent ? read a book of any kind in the previous year, down from 60.9 percent a decade earlier. Readers of literature fell even more dramatically, to 46.7 percent of the adult population, down from 54 percent in 1992 and 56.9 percent in 1982. Although the number of readers of literature is about the same now as it was in 1982 ? about 96 million people ? the American population has increased by almost 40 million.
Last month the Association of American Publishers released worldwide sales figures for 2003, indicating that total sales of consumer book products increased 6 percent for the year. Much of the increase can be accounted for by sales of audio books, juvenile titles and nonpaper e-books that are sold online. Adult hardbound books, adult paperbacks and mass-market paperbacks all showed relatively flat revenues in spite of price increases. Interestingly, the one category of book to rise markedly was that of religious texts, with total sales of $337.9 million, 36.8 percent over the previous year.

UT regents elect James Huffines chairman

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This Austin American-Statesman article reports on the University of Texas System Board of Regents selection of James Huffines, an Austin banker and behind-the-scenes Republican powerbroker, as chairman of the UT Board of Regents on Wednesday. Mr. Huffines succeeds Charles Miller, a retired Houston money manager, who resigned the chairmanship but will continue to serve as a regent until Governor Perry appoints his replacement.

Building a better educational system

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This NY Times article explores the Finnish educational system, of which Tyler Cowen over at Marginal Revolution points out:

1. Finnish children do not start school until they are seven years old. Most Finnish children do start day care from about the age of one, given that most mothers work.
2. Educational spending is a very modest $5,000 per student per year.
3. There are few if any programs for gifted children.
4. Class sizes often approach 30.
5. “Finland topped a respected international [educational] survey last year, coming in first in literacy and placing in the top five in math and science.”
6. Finnish teachers all have a Master’s degree or more.
7. Finnish teachers all enjoy a very high social status.
8. Reading to children, telling them folk tales, and going to the library are all high status activities.
9. TV programs are often in English, and subtitled, which further supports reading skills. (This should also serve as a jab to those who complain about the global spread of American TV shows.)

Mr. Cowen’s post includes a number of good links to other sources reflecting the success of the Finnish education model, and then he provides the following insightful observation:

The United States performs remarkably well when it harnesses status and approbational incentives in the right direction. We have done this for business entrepreneurship, but we are not close when it comes to education. When it comes to economics, we have to move away from our near-exclusive emphasis on monetary incentives.

Given the tradition of local control over public schools in the United States, is it possible for the federal government to initiate and sustain the policies necessary to create the incentives necessary to improve public education in this country?

UT Law attracts top business law prof

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Brian Leiter reports in this post that Bernard Black, the George E. Osborne Professor at Stanford Law School and a leading figure in corporate law and law and economics, has accepted an offer to teach at the University of Texas School of Law.