Department of Education, University of Cyprus, PO Box 20537, 1678 Nicosia, Cyprus.
E-mail: melmen@ucy.ac.cy

Abstract

The article assesses the importance of rate-of-return (RoR) analysis for planning and policy making in higher education. After a review of the methods used, the main criticisms brought against RoR analysis are discussed in relation to the screening function of education, the measurement of educational costs and benefits, and of the pure effect of education on earnings. Recommendations are made with respect to the use of rates of return as guides to public and private decisions in higher education: the extension of the application of rate-of-return analysis to include the estimation of returns to the quality of education; information to prospective students about rates of return associated with different types of education; and the use of perceived rates of return as a basis for the demand for higher education.