A Game Theoretical Approach to Private Tutoring in South Korea

This paper attempts to develop game theoretical models of parents’ decision-making on the consumption of private tutoring (PT). From the individual decision maker’s perspective, investment in PT guarantees a high private rate of return, while from the country’s viewpoint, PT entails a low social rate of return with substantial opportunity and transaction cost. In this respect, Spence’s job market signaling model and Thurow’s job queuing model contain similar implications of investment in education, thus these models were introduced and integrated into PT game models. The Nash Equilibriums from the two PT game models were characterized by the following. First, throughout the two non-cooperative PT game models, when the benefits from PT considerably exceeded the costs of PT, games between parents with symmetrical characteristics had suboptimal Nash Equilibriums that are similar to the Prisoner’s Dilemma Game. Second, games between parents with asymmetrical characteristics showed a Nash Equilibrium where parents with competitive advantages in income, their child’s ability, and preference for education spend all of their income on PT while relatively disadvantaged parents do not spend money on PT. The governmental interventions to shift the equilibriums of the PT game are suggested here. JEL Classification: I21, C72