The nature of information often makes it look like a public good. Is this the case for certification of peoples abilities? Is there a role the government could play in certifying people's abilities? Maybe do people thing that that's one of the roles that public universities play? Spence I guess is the typical reference that suggests that people go to school for certification/signaling of abilities rather than to acquire skills. Maybe that's a reason that there are many public universities?
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1$\begingroup$ "rather than teach anything useful" -- gesundheit (please avoid unnecessary normative judgments like this) $\endgroup$– Kitsune Cavalry ♦May 20, 2016 at 17:17
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$\begingroup$ Ok, good, yes sorry. $\endgroup$– Fix.B.May 20, 2016 at 17:24
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$\begingroup$ @Fix.B. The word "public" appears only once in Spence's paper, on pg. 369. and it is followed by the word "information", not "university". $\endgroup$– GiskardMay 21, 2016 at 11:58
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1$\begingroup$ Yes, sorry, I did not communicate what I wanted. I meant that education, according to Spence, has a lot to do with signaling abilities. In that context, governments might have a role to play providing the infrastructure for people to do this signaling, and maybe that is a good reason to have many public universities. $\endgroup$– Fix.B.May 21, 2016 at 13:13
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3 Answers
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Information is certainly not a public good. Job applicants know their skills with certainty, while employers do not know the skills of applicants. The application process is designed to increase the employers information set so that they can select the best candidate. However, applicants have an incentive to lie, so this process may not always be effective.
Certification, on the other hand, is a credible quality signal that cannot be (easily) faked. This massively reduces the employer's search and opportunity costs. This is not just theory: many job applications simply require a university degree, and virtually all require at least some type of certification.
Whether the government has to play a role in the certification process is another question. An ideological rather than an economical one, if you ask me. Regardless of the answer, it should be noted that many advanced certification standards are upheld by non-governmental bodies. Even if public universities are considered part of government, they are usually accredited by non-governmental organisations. And so are most driving schools, cooking schools, professional degrees, etc.
The question seems to have changed a lot since this answer.
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1$\begingroup$ "Most universities are private institutions" perhaps in the Anglo-Saxon world, but I don't think this is true for most countries. $\endgroup$– GiskardMay 21, 2016 at 12:01
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1$\begingroup$ Point taken. It was a poor expression of the idea that even public universities are not state-run. But while thinking about this, I realized that regardless of whether the universities themselves should be considered public or private bodies, the certification of itself is usually not government-controlled. $\endgroup$– user7935May 21, 2016 at 14:16
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$\begingroup$ Some information is public, but that does not make information a public good. Firstly, information is not a good because it is not scarce, it can be reused infinitely. Second, information can both private or public, so it would be inaccurate to classify it is either the one or the other. $\endgroup$– user7935Jul 6, 2016 at 9:34
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1$\begingroup$ @user7935: "information is not a good because it is not scarce, it can be reused infinitely" This is the definition of non-rival good. $\endgroup$– beroalMay 30, 2017 at 14:27
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The appropriate role of government is to improve on free activity of the market by improving how the market works (ie fixing market failures). For skill certifications to be an appropriate role for government, such certification would have to be a public good, which would require that it creates a positive externality - a value given to someone that hasn't paid for it.
In the case of skill certification, there certainly is no positive externality. It's easy and in fact very often done in the free market. There are a myriad of certification programs, schools that give degrees, and tests you can take that provide some proof of skill. All of these things can be done with your usual buyer-seller relationship without any externalities happening. Therefore the government doesn't have a role to play there.
I wrote a whole article on the appropriate role of government, which might clarify things for you: https://governology.wordpress.com/2016/07/05/the-role-of-government-part-1/
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$\begingroup$ Clearly moral hazard exists in the case of most certification programs. If there are two programs handing out a similar certificate to people who successfully complete the program they have an incentive to lower the bar of acceptance. Word would spread and more people would choose the easier program. The solution could be separating the teaching entity from the examining entity. Government does have a role to play here by providing the examining entity. (The actual solution is usually certifying the entity to make sure there are standards.) $\endgroup$– GiskardJul 5, 2016 at 10:59
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$\begingroup$ An example of moral hazard would be bond rating companies which were much criticised for their role in the 2008 financial crisis. As it is explained in the big short the rating agencies are payed for their services and companies wishing to certify their bonds with a high rating can choose freely. This can lead to a competition in overrating bonds, resulting in adverse selection. $\endgroup$– GiskardJul 5, 2016 at 11:02
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$\begingroup$ @denesp "Word would spread and more people would choose the easier program." Word would also spread about that program lowering its bar. Certificates from that program would lower in value accordingly. Moral hazard isn't a market failure, despite that widespread myth. $\endgroup$– B TJul 5, 2016 at 23:23
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$\begingroup$ The problem with bond rating companies is that the government is charged with regulating their ratings. While the government theoretically controls what "AAA" means, for example, if they give agents (bond rating companies) the ability to give out rating, then they have created an artificial situation where externalities can occur - the escalating overrating of bonds. This is a government failure, not a market failure and shows clearly why there is no role for the government to play here. If the rating scale were owned by a single company, that company would have an incentive to keep up quality $\endgroup$– B TJul 5, 2016 at 23:31
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$\begingroup$ Moral hazard is indeed not market failure but the resulting adverse selection is. (If you read my comment again you will see this is what I wrote.) In your second reply you write that the bad situation is " a government failure, not a market failure" because the government controls are not proper. You think this would not happen without government controls, only with bad controls? $\endgroup$– GiskardJul 6, 2016 at 7:36
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There are only 3 fundamental types of market failure:
- Externality
- Anti-competitive markets
- Sub-optimal initial allocation
While information can be a positive externality, information about high value things like the skills of a potential employee are never an externality. There are two parties to a service transaction: the hired party and the hiring party. No 3rd party is affected, and therefore there is no externality involved. So by this logic, there is no economically justifiable role for government to play in certifying or licensing people's qualifications, tho it might well play a role in resolving disputes involving fraud if someone misrepresents their skills.