Teacher-student interaction: A game theoretic extension of the economic theory of education

Abstract This paper employs the ‘economic theory of education’ to consider the joint interactive choices of student and teacher. Game theoretic analysis is applied extending the work begun by Correa (1974) . It is shown that the relative degree of substitutability in the utility and achievement functions determines whether a student responds positively or negatively to the teacher's greater effort or harder grading. Conditions for the existence and stability of a non-cooperative equilibrium are investigated. Due to the public good nature of student achievement, the non-cooperative equilibrium will result in insufficient academic effort being allocated to academic achievement for Pareto optimality; and therefore, there is a need for binding cooperative agreements.