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Price Controls & Exam Results

Honouring Truths...

My musings about price controls lately is entirely a consequence of an article I'm working on. And it has led to surprisingly interesting ideas and analogies about how to present the issue. The market serves as a way to allocate resources; as an analogy, exams are, to a certain extent, means of assessing talents and thus allocating human resource.

Now, ignoring the details, we can think of price floors and price ceilings as teacher's biasness. Imagine, if you are aware that a particular teacher is nice and he never gives you less than 45% as long as you write something related to the question in an essay, then you will not have much incentives to study. Likewise, if there is some unwritten rule amongst the teachers that no students can be given more than 79% for essays, then students will slowly discover this and simply work hard enough to get scores close to that and then stop trying.

Then comes the other side of the market; the parents and employers looking at the results of the students; they will respond incorrectly to the signals. They might think their kid scoring 75% is doing just fine but not terribly excellent and employers might think the guy who passed with 50% score is more or less the average (when he is likely to be at the bottom pile). And they will make the wrong hiring/spanking decisions!

Prices works the same way, they provide incentives and gives a signal; give producers a price ceiling or price floor and they have no incentives to provide goods above a certain quality. Worst still, too many consumers would want to get the good with a price ceiling below market price and too few consumers would emerge to get the goods with a price floor above market price. Government institute price controls because they think certain pricing are not justified or that they harm certain groups of people; if the market is competitive, however, the controls only distorts the signals and screws up the entire resource allocation process.

If the school wants their examinations to work, they have to mark the papers properly without such constraints on the marks of the students or it simply distorts the system - exams then fail to achieve their purpose. If examination scores are a source of misery for students because it either hurts their feelings or pride, teachers should be providing support in other means and not through fixing the scores to make students feel better (or less bad about themselves). They could provide counseling, learning support, supplementary/remedial. Likewise, if the government wants to help the poor, they need to provide income transfers that do not mess up the prices in the market. Allow exams to serve their purpose, then manage the outcome - don't try to hinder with the processes of the market to produce a different outcome. Exam results and prices reveals truths and truths may sometimes upset people - we simply need the correct support structures to help these people who are upset rather than try to make them not-upset in the first place.