Inefficient Signalling, Education Arms Race and Education Inflation in China

Abstract

Since the higher education expansion and education marketization from 1998, China’s education inflation has become increasingly serious. And correspondingly, the income of graduates remains in a low level. This paper built a model and explained two important reasons. First, the quality of Chinese high education is relatively low, which means the signal effect of education will be less efficient. Second, every individual has an incentive to occupy higher status in the education hierarchy, which means there is a zero-sum education arms race game. I try to build a simple but powerful model in this essay to explain how thses two factors contribute to Chinese education inflation and how they intertwine with each other.