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Saturday, March 19, 2011

MethodLogical

MethodLogical


(Mis)measuring Brain Drain

Posted: 18 Mar 2011 06:28 PM PDT

Some brief thoughts on the paper Andrew found that attempts to put a price on the brain drain. Several of the things they’re doing are questionable:

1) They attribute all the investments in education to the home country. A lot of that cost is borne privately rather than publicly-funded, so that’s not necessarily the way you should think about investments.

2) They don’t adjust their returns for inflation, which just silly. Since Kenyan inflation outstrips US rates, using nominal interest rates in Kenya to compute values in US dollars will tend to exaggerate things.

3) They treat medical education as an investment that earns a return equal to what you’d get from bank. I actually think this is a useful starting point for discussion but it misses two important points. First, people invest in education as long as their return exceeds what they get from a bank, so this is a lower bound on the average return (economists frequently get this wrong too).

Second, it misses a large share of the social return: even if we accurately measured how much medical training is worth to doctors, that would be pricing lives saved at the cost of saving them. But one reason we like doctors is that it doesn’t cost us $1 million (or $10 million or whichever number you want to use) to save each life. The social surplus – the real benefit of training doctors – is actually the difference between the cost of lives saved and how much they’re worth. This is enormous for doctors, who might save dozens or hundreds of lives a year.

Brain drain is far too complex an issue for an approach as simple as this article to sort out, and its effects are an open question in economics – for example, one of my classmates is looking at what happens when people can move back and forth between countries, which certainly goes on.