In an efficient closed university without barriers to entry and barriers to learning, the Exam-Preparation Curve is backward-bending and exams, in general, lead to inefficient outcomes.
There are very few instances in life when you actually get to apply what you learn in the classroom to pressing practical problems. At least in mine. So it is not absolutely nonsense when I write in all my applications and cover letters and about-me passages that my sole purpose in life is to apply classroom theories to real-life problems. I just wish sometimes that I could be more creative at least..
But anyway, the reason for this sudden enthusiasm is that one of those few instances occurred very recently in my life (Amen), thanks to an amazingly theoretical course called Public Economics (or rather, the end of it). If you are able to simplify life to two people (easy if you're in love) and two commodities (easy if you're Gandhi) and selfish motive (easy if you're not Gandhi) and free communication (easy if you're not me), you have aced the course. Sometimes you might have to include the government for tax collection and dissipation purposes. But all this is irrelevant. If you want to understand what I'm saying, you need to understand two rules first:
1. Labour Supply Curve is "backward-bending" - as wage rate reduces, the workers work more to earn the same total wage. But as per-hour wages reduce further, they actually work less since they value an hour's leisure more than the wage they receive by working.
2. Taxes, in general, are inefficient. Because they are distortionary. Because they change one's behavior. That is theory. Add to it the Ramsay Rule - well if you have to tax, do it as efficiently as possible. Tax the ones whose behavior cannot be changed, more.
By analogy, consider a student (Stud) studying for an exam. The more there is for Stud to study, the more he studies. But beyond a threshold amount of study Stud has to study, he will give up and not study. Thus Exam-Preparation Curve (EPC) is backward-bending.
Secondly, if there was no exam, Stud would study even less. So the exam is changing Stud's study patterns. Thus, the exam is distortionary. Implies, exams are inefficient. Apply to this the Ramsay rule (very apt since Ram is what we repeatedly say when the EPC begins to bend backward). Assume there is another student (Very-stud) who is always prepared for the exam. The efficiency rule dictates that Very-stud should have more exams than Stud.
However, just like how the efficiency-vs-equity conflict makes it imperative to have distortionary taxes, the learning for learning's sake-vs-learning for earning's sake conflict makes exams indispensable. The real world has more than two people (you can't be blindly in love for very long) and more than two commodities (well, one has one's needs) and selfish motive and no free communication (I get charged to call you, thank you very much dear Vodafone, now you even ask me for identity proof). But again, all this is irrelevant. The two rules above still hold. Thus, distortionary taxes are still inefficient, as are exams.
I am Stud, therefore I need no exams.
If I were Very-stud, I would still need no exams.
