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This autumn, some 300,000 would-be corporate superstars will begin slaving over their applications to America's 700 business schools. Behind their essays on empowering workers and managerial ethics lies a baser craving for money. Yet it is unclear whether investing in an MBA will satisfy that craving--especially since the costs of two years' tuition and forgone salary often exceed $100,000. Even business-school deans are unsure how much value their programmes create, let alone how they create it.
A new book by Ronald Yeaple*, a professor at the University of Rochester business school, may help students and deans alike. For the students, he uses a market-based approach to determine which schools offer the highest financial rewards. And for the deans, he uses the figures to explore how business schools create value.
His study starts from a survey conducted by Business Week, which reports the average annual incomes of 20 leading schools' graduates five years after graduation. By itself, this information does not mean much. Prospective MBA students want to know how much each school will add to their existing incomes, and whether these additional earnings justify the up-front costs.
Mr Yeaple estimates the trade-off that a typical MBA student must make. First, he asks what the average student from each school could have earned without the MBA, allowing for the fact that the earnings of some high-fliers would have grown...