Friday, May 25, 2007

Examination hell and the economics of 'Japanese JEE'

In Japan, the high value placed on college prestige leads to intense competition among high-school students to enter top colleges. These students undergo a phase termed examination hell in which they cram to prepare for the annual college entrance examinations. An extreme manifestation of examination hell is the ronin phenomenon. When students are not accepted into the college of choice, they may repeat the process under ronin status. Ronin students spend an additional year, or as many years as it may take to enter the college of their choice, and often attend specialized college entrance preparatory schools. The proportion of students entering college with ronin experience averages about 30%, and may even exceed 60% among the top colleges.

Reminds you of our own entrance exams, doesn't it? This is from the intro section of an academic paper by Hiroshi Ono titled "Does Examination Hell Pay Off? A Cost-Benefit Analysis of "Ronin" and College Education in Japan." The published [but gated] version is here. [Thanks for the e-mail alert go to Kollegala Sharma, whose Kannada blog Alemari is devoted to science].

Here are the conclusions:

Examination hell refers to the competitive environment under which students cram and compete to gain entry into the preferred colleges in Japan. Examination hell is motivated by the hierarchical ranking of Japanese colleges, and the generous benefits associated with graduation from the elite institutions. If students are not accepted on their first attempt, they may repeat the process under ronin status, and spend an additional year, or as many years as it may take to enter the college of their choice. The enormous investment undertaken in examination hell warrants a cost–benefit analysis that quantifies the costs and benefits in a unifying framework.

My research clearly shows that graduates from higher quality colleges achieve higher earnings. I find that the IRR to college education in Japan varies considerably as a function of college quality, ranging from 0.1% to 14% (with mean of 6.4%).

On average, examination hell does pay off, when evaluated by the returns to ronin investments. My OLS results show that the direct effect of ronin on earnings is weak. When ronin is modeled using instrumental variables regression, I find that ronin increases earnings indirectly through its improvement in college quality. This makes sense because individuals invest in ronin for the sake of improving the quality of the college that they attend, which subsequently leads to higher earnings. The IRR with respect to ronin peaks somewhere between 1 and 2 years of ronin. Hence, ronin is generally a good investment, but subject to the risk of overinvestment.

Although ronin may bestow benefits for individuals, the social implications are not so optimistic. Considering that one-third of the college-bound population undergoes a moratorium of at least 1 year, the social cost resulting from the lost output is substantial. It is therefore not surprising that the Education Ministry views ronin as a social problem. An extension to the current research would be to investigate the existence and magnitude of the negative externalities associated with the ronin phenomenon.