Discussion on the abstract for “Diminishing Marginal Returns and the Production of Education: An International Analysis,” by Douglas N. Harris (Education Economics, 2007).

Marginal return is the amount of benefit that is added by adding one additional input. Diminishing marginal return (DMR) is the hypothesis that each additional input has a smaller effect than the previous one. The article Diminishing Marginal Returns and the Production of Education: An International Analysis looks at the role that DMR plays on education. Specifically, the article states that class size and the educational level of teachers have DMR. The article then takes this a step farther and states that DMR has actually reached such a degree where the marginal return is negative. Finally the article challenges the Heyneman-Loxley hypothesis, which believes that school inputs are the primary drivers of success in schools, and has shaped the role of governments aiding schools.

This challenge raises the obvious question, “At what point does the marginal return begin to be negative?” In order to look at this question, let us imagine two countries, America, a developed nation, and Afghanistan, a developing nation. Also, let us define that the marginal return we are measuring is the overall knowledge of the entire population. Furthermore, let us first isolate the event to look at only one input at a time. First, we will look at class size. A larger class size in America is likely to have a negative marginal return, as each additional student means every individual student is getting less attention from the teacher. In Afghanistan, however, a larger class size would increase the overall knowledge of the country as more students are being educated. Because the education level is lower in the developing country, the greater the input of students, the greater the overall increase of knowledge.

Let’s now look at a second input, technology in the classroom. The diminishing marginal return for students in America would become evident much quicker than in Afghanistan. In America, there is much less to learn with each additional input of technology, as many people are already accustomed to it. However, in Afghanistan, the additional inputs would have much greater marginal returns, as there is more information to be learned.

In conclusion, diminishing marginal returns have a greater effect on developed nations than they do on developing nations.

Another real world application of diminishing marginal returns in production theory is the classic example of fast food restaurant employees. Say the first worker you hire to work the grill in the kitchen has a marginal return of 15 hamburgers an hour. When a second employee is hired s/he adds a marginal return of 10 hamburgers an hour. Following the same pattern, the third employee hired only adds a marginal return of 5 hamburgers. The reason for these diminishing returns is that the more employees at the grill, the more crowded the area becomes and the lower their utilization and marginal return. This principle could generally apply to many different small businesses because it reflects the logic that early inputs yield the highest return while later inputs yield lower returns due to limited resources and over utilization.

Posted by Addison, Conor and Conor (Section 3)

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