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An Application of the Internal-Rate-of-Return Method: Rates of Return to Medical and Dental Education

  • Kazuhiro Arai

Abstract

The internal-rate-of-return method examined in Chap. 2 is an approach frequently used to analyze college-going behavior. In this chapter, we will compute internal rates of return using actual data and use the computation results to consider problems concerning college-going behavior.

Keywords

Private Institution Future Demand Social Rate Private Cost Private Rate 
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Notes

  1. 1.
    This chapter is based on Arai (1986).Google Scholar
  2. 2.
    As we saw in Chap. 2 (see Note 11), the resource allocation in perfectly competitive markets is Pareto optimal (under certain conditions).Google Scholar
  3. 3.
    For instance, when the total number of physicians equals N,in Fig. 4.1, the marginal valuation and income of any particular physician equal w1. This is because when any particular physician exits from this market (or when the number of physicians decreases by one), the value the market (society) loses equals w, under an assumption that all physicians are identical and thus substitutable. This is equivalent to saying that the social valuation of any physician is equal to w,.Google Scholar
  4. 4.
    Both are compiled in Ministry of Public Welfare (1986b).Google Scholar
  5. 5.
    The former is compiled in Ministry of Public Welfare (1985). See Ministry of Public Welfare (1986a) for the latter.Google Scholar
  6. 6.
    See page 6 of the Interim Opinion of the Committee for Examination of the Future Demand for and Supply of Physicians and page 7 of the Interim Opinion of the Committee for Examination of the Future Demand for and Supply of Dentists.Google Scholar
  7. 7.
    See page 3 of the Interim Opinion of the Committee for Examination of the Future Demand for and Supply of Physicians.Google Scholar
  8. 8.
    The number of patients depends basically upon the following three factors: (1) the population, (2) the rate of receiving treatment, and (3) the disease structure which affects treatment days and treatment intervals (page 16 of the Interim Opinion of the Committee for Examination of the Future Demand for and Supply of Physicians).Google Scholar
  9. 9.
    This number of ten thousand non-clinical physicians equals about 5.5% of the total number of physicians in 1984 (source: Ministry of Public Welfare, 1986b).Google Scholar
  10. 10.
    See page 18 of the Interim Opinion of the Committee for Examination of the Future Demand for and Supply of Physicians. In contrast, the Interim Opinion of the Committee for Examination of the Future Demand for and Supply of Dentists considers the number of patients per clinical dentist independently of the matter of week holidays.Google Scholar
  11. 11.
    The exact nature of these fees is not clear as they are only vaguely described in the source. It is possible that they are “required donations”.Google Scholar
  12. 12.
    The author owes Mr. Takatoshi Kikuchi the following computation of the amounts of tax.Google Scholar
  13. 13.
    The quotation is from page 14 of the Interim Opinion of the Committee for Examination of the Future Demand for and Supply of Physicians. However, this opinion suggests that many physicians no younger than sixty-five are actually working. According to the Interim Opinion of the Committee for Examination of the Future Demand for and Supply of Dentists (page 14), most dentists regard seventy as the proper average age of retirement for dentists. If these are taken into consideration, the rates of return computed below are biased slightly downwards.Google Scholar
  14. 14.
    Maurizi (1975) and Burstein and Cromwell (1985) estimated private rates of return to medical and dental education in the United States. The former estimated private rates of return to dental education at eight points in time from 1948 to 1970. The estimated rates are between 13.6% and 25.5%, and more recent rates tend to be higher. On the other hand, the latter estimated private rates of return for physicians, general practitioners, and dentists at thirteen points in time from 1967 to 1980 (at six points in time for dentists). The rates of return were estimated respectively before and after adjustment for working hours. (It should be noted, however, that this estimation did not use earnings data classified by age, and thus rates of return were computed basically by applying the earnings averaged over all ages to an equation similar to Eq. 2.16. Moreover, it did not consider economic growth either.) According to the estimates, the rates of return for physicians were between 10.2% and 12.1% before adjustment for working hours and between 12.6% and 15.5% after adjustment. On the other hand, those for general practitioners were between 16.3% and 19.0% before adjustment and between 12.1% and 14.5% after, while those for dentists were between 13.5% and 16.3% before adjustment and between 14.8% and 15.7% after. These rates are higher than the private internal rates of return to medical and dental education in private institutions in Japan. See also Mennemeyer (1978).Google Scholar
  15. 15.
    See Financial Institutions in Japan by the Bank of Japan for the low-interest-rate policy.Google Scholar
  16. 16.
    It should be added further that before-tax wages are used in the computation of the private rate of return to general higher education.Google Scholar
  17. 17.
    This is the author’s summary of a part from page 29 to page 30 of the Final Opinion of the Committee for Examination of the Future Demand for and Supply of Physicians.Google Scholar

Copyright information

© Kazuhiro Arai 1998

Authors and Affiliations

  • Kazuhiro Arai
    • 1
  1. 1.Hitotsubashi UniversityKunitachi, TokyoJapan

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