Highest Value

It dawned on me that, in addition to learning all kinds of things about online education in the process of taking 32 courses in twelve months, I’m also being exposed to a wide range of ideas in those classes that might provide insight into the phenomena being dissected on this blog.

Which means that every now and then, I’d like to do some analysis that taps directly into the substance of one of the courses I’ve taken.  So today, let’s see what the principles of property law (which I learned from Coursera’s Property and Liability course, taught by Wesleyan’s Richard Adelstein) have to say about who owns what relating to MOOCs and college credit.

Three key points taught in that class that will be relevant to this discussion:

(1)    While we might think of property as something we own (and thus possess all rights to), in fact any single piece of property might have dozens or hundreds of different rights associated with it (which property law professors urge us to visualize as a bundle of sticks or quiver of arrows), each of which could potentially be owned by different people.

Using an example from Adelstein’s class, if Person A wins a $500 contract that allows him to test sirens in his house, but his neighbor – Person B (who realized that the noise of siren testing will result in a loss of $200 worth of value in his home) successfully sues to stop such testing, then Person B has actually won a property right in Person A’s home (the right to test sirens there) which Person A chooses to exercise negatively by preventing the sirens from being tested.

(2)    That all things being equal (i.e., if there are no barriers to transaction) property rights will always flow to the highest valuing owner in an efficient market.  So continuing with Professor Adelstein’s siren-testing example, if testing sirens is worth $500 to Person A and only $200 to person B, then no matter who wins that lawsuit mentioned above, sirens will still be tested.

Why? Because if Person A wins the suit, then he wins the property right to test sirens in his home, full stop.  But if Person B wins the suit, that right is only worth $200 to him.  So if Person A can offer Person B anything more than $200, he can buy that siren-testing right (which is still worth $500 to him). This means that regardless of who wins the lawsuit, the property right will end up in the hands of the person who values it most (with the division of the spoils the only thing up for negotiation).

(3)    But all things are rarely equal.  If government places taxes or fees on siren testing, for example, those create what are called externalities that can impede or prevent transactions (as can delivery costs and other market factors).  So, for example, if the town has a $600 tax on home-based business activity, then someone will not start a siren testing business in their home that only brings in $500, no property right to test sirens will be created, and thus Person A and Person B will have nothing to dispute.

Moving to a different kind of property, who owns a college credit?  After all, not anyone can grant one, so it makes sense that a degree-granting institution (such as a college or university) be considered the owner of the right to sell a credit (which really represents a portion of a degree – or, more specifically, to the right to legitimately claim to have a degree from that college or university).

For the sake of simplicity, let’s consider a college with a $16,000 per year tuition that requires students to take eight full-credit courses each year, which translates to each credit having a value of $2000.

If students are willing to pay this price, then they can be considered the highest valuing owners of the credit since it is worth more to them to obtain this credit ($2000 to be exact) than it would be for a college or university to hoard (i.e., refuse to share for a fee) the property right to the credit.

But what is the value of this credit to the school?  You might think it’s nothing since that’s what the school would earn if it refused to sell credits (i.e., refused to accept payment for credits in the form of tuition).  But if the value of the credit to the school was truly zero then – in theory anyway – students could bargain with schools they want to attend (creating a market for highest valuing owners, which schools would have to accept since anyone offering them anything is worth more than what they’d earn if they had no tuition-paying students).

Here is where those externalities play a role.  For most students are not shelling out their own cash for college but are instead paying for credits with  money provided by parents, by government (in the form of scholarship and grants) and by financial institutions (in the form of loans).  And each of these financial players has cost associated with it in terms of requirements and fees born by both the students obtaining the money and the schools which are the ultimate recipient of cash for credits.

If these externalities prevent a perfect market from forming around college tuition, they also create social norms that schools subscribe to, including the norm to make college accessible to everyone (even those with low incomes).  And while most institutions would prefer to maintain a higher per-credit price and expand the pool of money available to pay for those credits (by urging greater state contribution to education, for example), the desire to make college accessible also requires them to keep an open mind to alternatives to paying full-fee for credits.

And MOOCs-for-credit represent one of these alternatives.  But this raises the question of what we consider a MOOC to be worth in and of itself (i.e., does the current price of zero dollars for a MOOC absent college credit represent its true value?).  And it raises a second question of how much we might be willing to pay for anything equivalent to a college credit that is currently valued in the thousands.

Some answers to those two questions tomorrow.