A GAME THEORY APPROACH TO STUDY EDUCATION AS A PART OF GLOBAL SUSTAINABILITY

Priyanka Tripathy Asst. Prof. MAHENDRA INSTITUTE OF MANAGEMENT AND TECHNICAL STUDIES priyaimba.tripathy@gmail.com

ABSTRACT Education in every sense is one of the fundamental factors of development. No country can achieve sustainable economic development without substantial investment in human capital. Education raises peoples productivity, creativity, promotes entrepreneurship and technological advances. In addition, it plays a very crucial role in securing economic and social progress and improving income distribution. The role of improved schooling, a central part of most development strategies, has become controversial because expansion of school attainment has not guaranteed improved economic conditions. This paper reviews the role of education in promoting economic well-being, with a particular focus on the effect of education on the economy in a global aspect. This paper is developed under the idea, that the education is a rational thing for a country to maintain its economic sustainability. Keywords: Economy, Education, Contribution, Life expectancy Introduction Prior to the nineteenth century, systematic investment in human capital was not considered important in any country. Expenditures on schooling, on-the-job training, and other similar forms of investment were quite small. This began to change radically during this century with the application of science to the development of new goods and more efficient methods of production, first in Great Britain, and then gradually in other countries. During the twentieth century, education, skills, and the acquisition of knowledge have become crucial determinants of a persons and a nations productivity. One can even call the twentieth century the Age of Human Capital in the sense that the primary determinant of a countrys standard of living is how well it succeeds in developing and utilizing the skills and knowledge. In contemporary times when the focus is on the 'knowledge economy' the role of education becomes all the more important in the development of human capital. Education can reduce poverty and social injustice by providing the underprivileged resources and opportunities for upward social mobility and social inclusion. Education and Income There is also a positive feedback from improved education to greater income equality, which, in turn, is likely to favour higher rates of growth. As education becomes more broadly based,

low-income people are better able to seek out economic opportunities. For example, a study of the relation between schooling, income inequality and poverty in 18 countries of Latin America in the 1980s found that one quarter of the variation in workers incomes was accounted for by variations in schooling attainment; it concludes that clearly education is the variable with the strongest impact on income equality (Psacharopoulos, 1992). Another study suggested that a one percent increase in the labour force with at least secondary education would increase the share of income. (Bourguignon and Morrison, 1990). Education may affect per capita income growth via its impact on the denominator, i.e. population growth. Some countries have successfully combined openness and investment in learning and education, forming a virtuous circle: openness creates demand for education, and learning and education make a countrys export sector more competitive. The impact of trade openness on long term growth thus depends on how well people are able to absorb and use the information and technology made available through trade and foreign investment. It is widely accepted that in order to adapt to an environment of stronger competition, and to a world emphasizing the role of information, knowledge and skills, advanced economies need continuously to upgrade the overall quality of their labour force. Data The basic data required for this analysis is the Education index and Income index which was taken from HDI trends: 1980-2010 and other countries during the period 1980, 1985, 1990, 1995, 2000-2010. The Education and Income index obtained are the essential information for this study. Methodology Game Theory Model has been used for decomposing the contribution of increasing years on Education and Income. Theory of games provides mathematical models that can be useful in explaining interactive decision making concepts. In practical it is required to take decisions in a competing situation when there are two or more opposite parties with conflicting interest and the outcome is controlled by the decision of all parties concerned. Such problems occurred frequently in Economics, Business Administration, Demography etc. (Kapoor, 2001; Gupta and Man Mohan, 2002; Sharma and Sharma, 1996). Game Theory Model under Von Neumann has been incorporated into the twentieth century.

Flow Chart of Game Theory Approach

Write the payoff matrix Apply maximum or minimum principle Identify the value of the game & the optimal strategy of the player Solve by using algebraic method Yes Is there a saddle point? Yes No Is it a 2*2 payoff matrix game? Yes Yes No Is payoff matrix reduced to 2*2 size? No Use graphical method to reduce the matrix to 2*2 size Is payoff matrix reduced to 2*n or m*2 size?

Analysis To understand the relative contribution of education in different years on income the data for the study is drawn from the HDI trends 1980-2010. The data for the strategy of player A is the year sequence and the data for the strategy of B are the education index and the income index. Both the strategy of Player B are co-related to each other. The education index and income index at different years for the 1880, 1885, 1990, 1995, 2000-2010 period is presented in Table 1. Table 4: Education Index (E) and Income Index (I) , Nepal

Yr 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Column maximum

E 0.10165 0.16786 0.24529 0.26573 0.28846 0.28561 0.29400 0.30407 0.30866 0.31319 0.31880 0.32432 0.33975 0.33108 0.34034 0.34034

I 0.20564 0.22311 0.23969 0.25918 0.27860 0.28000 0.27647 0.27909 0.28263 0.29518 0.30851 0.31106 0.32619 0.33352 0.32028 0.33352

Row Minimum 0.10165 0.16786 0.23969 0.25918 0.27860 0.28000 0.27647 0.27909 0.28263 0.29518 0.30851 0.31106 0.32619 0.33108 0.32028 0.33108

Here, the maximum of row minima (0.33108) minimum of column maxima (0.33352). Thus it doesnt have a saddle point and tried to reduce the size of the matrix by applying dominance property. Table2: represents education index and income index after the application of the dominance property. Table 2: Reduced education index and income index after the application of dominance property, Nepal. Yr 2008 2009 2010 E 0.33975 0.33108 0.34034 I 0.32619 0.33352 0.32028

To further reduce the size of the matrix to 2*2, the graphical method has been applied. The same graph has been presented in Fig.1 . The table derived from the graph is presented subsequently in table 3.
1cm=100 units units

Fig: 1 Table 3: Reduced education index and income index after the application of graphical method, Nepal 1980-2010 Yr 2008 2009 Calculation If p1 and p2 are the contributions of 2008 and 2009 respectively, then p1=
( ) ( )

E 0.33975 0.33108

I 0.32619 0.33352

= 0.15

(p1 = (

) (

p2= 1- p1 = 0.85 (since p1+p2 = 1). Thus p1 < p2. Thus in the application of the method for Nepal shows that the year 2009 has a significant effect to maintain the economic sustainability of the country. Fig: 2 shows the data of 18 countries including Nepal which are taken for interpretation to analyze the effect of education to maximum extent in economy during the period of 1980-2010.

Fig. 2 Conclusion The purpose of this paper is to find out the relation of education with economic development and stability in a different perspective. It is observed during the study that countries of different segments: developing and developed have incorporated education as a major tool to maximize their economic strength. The study shows in 2010 maximum numbers of countries are benifited in their economical field through educational practices. The approach of game theory reveals the hidden interrelationship of education and income over a period of time on global sphere.
References 1.Psacharopoulos, G. (1994), Returns to Investment in Education: A global Update, World Development, 22(9). 2. Bourguignon, F. and C. Morrison (1990), Income Distribution, Development and Foreign Trade: A Crosssectional Analysis, European Economic Review, 34. 3. Tripathy P.K., Operations Research: Methods and Practice, Kalyani Publishers, Ludhiana, India, 2008.

4. http://en.wikipedia.org/wiki/Human_Development_Index