Friday, September 25, 2009

What If Colleges Auctioned Classes?

What would happen at colleges and universities if registration for classes incorporated auction prices as part of the process and past pricing was available?

Probably, there would be better course descriptions of classes, better teaching, and better matching of students' interest with the classes. In addition, there could be a host of unthought-of and unintended consequences and some might improve the learning process. Professors might be motivated to be better educators.

Suppose colleges used an auction process for class enrollment instead of the normal, arbitrary, first come first serve procedure, also known as the lucky if you get in procedure. Of course, all perquisite prerequisite requirements and graduation requirements will still remain and be the same.

(Caveat: I am not an auction expert. The specific auction suggestions below are just a broad outline for discussion purposes only.)

Colleges could use the Dutch auction method similar to the one used for new issues of US Treasury bonds. Pricing would determine student demand. It would also create an observable metric, a market-clearing price for each course.

Under a Dutch auction system, all students wanting to take a course with a known time and professor would bid for the course. The lowest price that filled the class, the price at which that class cleared in the market, would set the price for all registrants to that class. Students could have a prepaid non-refundable credit for the semester's tuition as their budget to use for bids for their classes.

A student's class selections would be filled until the student used the entire prepaid credit or until they have enough courses. Since there are enough class openings available for all students, and students want to select the courses they take, most students will have sufficient funds to fill their semester course schedule. Some courses at the end might have a zero price. Students with zero funds who bid would be a match for a zero price course selected.

If there are a by chance a few students at the end who might need more courses, additional rounds of auctions could occur until all students are fully registered or some default method of assigning classes could be used.

Why do we not see free market economists, auction economists, other economists or professors in other disciplines propose using a pricing mechanism to assign students to their classes?

I think it is an idea worth pursuing. We are a capitalistic, business oriented country that relies on pricing. The stock market, the commodities market, the US debt market, and most items in our daily lives rely on frequent accurate, meaningful pricing. Shouldn't we have pricing in the college course market?

Do economics professors only talk the talk about pricing, free markets, auctions, etc. and no not really believe in them?

Are professors afraid to have their course evaluated through a pricing mechanism, as publicly traded businesses are daily?

Are professors concerned that some other professor will fill a course at a higher market-clearing price?

Will a decline in prices over time show that they have lost interest in teaching or that their material has become irrelevant to modern students?

Are professors fearful that not enough students value their teaching or subject matter?

Are they worried that they may have openings at the very end and the Dutch auction price will be zero?

I think an auction registration process will give colleges a better understanding of actual demand for specific classes and a better evaluation of professors from a student/course perspective. It will also give the students a tremendous real-life economics learning experience.

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