Problem
The coordinator of an academic degree program wishes to design the program in such a way that maximises the university's profit from the program. Profits are given by (number of students enrolled) x (tuition). Tuition cannot be set by the coordinator, but through the policies he chooses, he can influence number of students enrolled. The policy available for him to manipulate to that end is the academic probation policy: the terms under which underperforming students are removed from the program. Assume student marks increase if they study more, and that studying is costly for students. Students care about the job they will get after graduation, which is in itself influenced by (i) their marks (higher marks lead to better jobs) and (ii) the selectiveness of the program they graduate from.
A. Explain the trade-off facing the coordinator: how might a stricter probation policy decrease the number of students enrolled? How might it increase it?
B. Consider the following two probation policies. Which do you think would be stricter "in practice"? Which do you think would be more effective at encouraging students to study?
a. Students are automatically expelled from the program if they fail more than 50% of their courses two terms in a row.
b. Whenever a student fails any course, he is liable for expulsion. The decision about whether to expel the student is made on a case-by-case basis by the coordinator.