Student Discount Rates, Consumption Loans, and Subsidies to Professional Training

More than 90% of US medical research is government-sponsored at some level, as is more than 40% of education expenses for physician training. An alternative, efficiency-based explanation of subsidies to medical training and medical care is analyzed. This analysis is based on underinvestment in medic...

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Bibliographic Details
Published in:The Journal of human resources 1981-01, Vol.16 (3), p.468-476
Main Authors: Leffler, Keith B., Lindsay, Cotton M.
Format: Article
Language:English
Subjects:
Capital markets
Communications
Discount rates
Earnings
Economic models
Education
Education, Medical - economics
Financial investments
Grants
Loan rates
Medical
Medical schools
Medical Services
Medical students
Nursing students
Patient care
Physicians
Professional Training
Rates
Students
Students, Medical
Subsidies
Training
Training Support - economics
Undergraduate Study
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Summary:More than 90% of US medical research is government-sponsored at some level, as is more than 40% of education expenses for physician training. An alternative, efficiency-based explanation of subsidies to medical training and medical care is analyzed. This analysis is based on underinvestment in medical training implied by the ''imperfection'' in the consumption loan market for medical students. The effects of any capital market imperfections on investment in medical training capital are analyzed, and the optimal subsidy implied by a divergence between subjective discount rates of medical school applicants and more appropriate discount rates reflecting the low degree of social risk implicit in such investments are calculated. A point estimate supports a 10% rate of internal return to undergraduate education as an implied discount rate. However, 10% is excessive in terms of actual social risk implicit in medical training. Assuming the appropriate discount rate is 3%, a subsidy to medical training of about 36% would be justified, instead of the 53% current subsidies.
ISSN:0022-166X
1548-8004
DOI:10.2307/145634