Nine times out of ten I happily tip my hat to Adam Smith and call it a day. But an examination of lifetime earnings for some of the top-educated professions gives reason to suppose that certain career incentives have long been askew. Consider the hypothetical case of two college roommates graduating near the top of their class in 2007. One chooses to enter law school while the other hears the ivory tower beckoning him to a career in academia. Both have similar experience and credentials, but the career paths they choose upon graduation will lead them to strikingly different financial outcomes.

Although the first roommate—let’s call him Mark—must borrow some money to meet tuition and living expenses at first, things will look up for him quickly. Pending high scores on his exams, he can expect a major New York or DC law firm to hire him as a summer associate after his second year of law school. The thirty thousand dollars he will make that summer will lessen the burden of his loans considerably. After three years, he will likely graduate, be offered a full time job with the same firm, and earn in excess of one hundred thousand dollars per year before his twenty-sixth birthday. If he is promoted to partner, his income can skyrocket. The hours will be long and the work will be hard, but in terms of lifetime earning potential, the sky is the limit.

The services lawyers, doctors, and business leaders provide are excludable in a way that the services of academics are not.

The case of his roommate Brian, the would-be academic, is somewhat different. Like most doctoral students, Brian receives a stipend that covers tuition and living expenses and therefore avoids the accumulation of heavy debt while in graduate school. But this comes at a huge opportunity cost. Mark will already be three years out of law school by the time Brian receives his Ph.D. in 2013. If Brian is lucky, he will secure a tenure-track position, earning somewhere in the neighborhood of half Mark's post-graduation salary. In the grand scheme of things, it is a fine income, but one that is surprisingly low in light of the fact that he will have doubled Mark's time-investment in graduate education. The salary will slowly increase over time, but even in the best of circumstances Brian and Mark will likely want to go to different restaurants when they meet on the night of their ten-year reunion.

I describe the cases of Mark and Brian not to grumble, but rather to illustrate a point about the incentives in play for those wanting to climb to the highest levels of education. On average, academics are compensated far less for their services than their contemporaries in law, medicine, and business. Consider the average yearly earnings of some indicative professions, displayed below. Business, law, and medical professionals typically earn twice as much as those in the academy. The discrepancy is even more substantial when one considers the earning “ceilings” for the different careers. The very best doctors, lawyers, and business executives can earn millions of dollars per year. In contrast, it is exceptionally rare for university salaries to top $200,000.

In looking at these figures, it would be easy to assume that the income gap exists simply because the services that academics provide are in low demand relative to other highly-educated professions. But there are other market forces that may be at play. Another possible economic explanation derives from the fact that the services lawyers, doctors, and business leaders provide are excludable in a way that the services of academics are not. A doctor bills each and every patient for whom he performs a procedure. A lawyer bills his client for every hour spent at work. And a business executive's strategies are kept proprietary such that a competing company cannot siphon off benefit from the efforts of expertise for which it does not pay. In each case, the costs are born exclusively by the individuals who benefit from the service. There are no free riders.

In contrast are academics, who deal in the marketplace of ideas. The fruits of their labor are, by nature, something of a public good. Consider economists, for example. Their diverse research has staggeringly broad applications, from monetary policy to efficient police enforcement and everything in between. Yet it is impossible to put a price on their contributions because they generally take the form of articles and books that are quickly disseminated through the media, by word of mouth, or, at worst, available at your local library.

The social benefits of education are made less dramatic by the slow pace at which they percolate.

It is generally accepted that, under a well-functioning free market, the best minds will go to where they are most needed because it is there that they will be most highly compensated. But perhaps academia provides an example of a market failure, where highly trained researchers do not receive full compensation for the goods they provide. How many potential Milton Friedmans, Stephen Hawkings, or Francis Cricks never published their papers because financial incentives steered them away from careers in research? Of course it is impossible to say, but I would hazard that the answer is, "at least a few."

Add to this possibility the many social benefits that universities provide for which they may not be fully compensated. The positive effects of education include lower crime, lower rates of smoking, better health, higher voter turnout, and increased volunteerism. The social benefits of education are made less dramatic by the slow pace at which they percolate, but in many ways education is the silver bullet to address society’s most difficult problems.

Because the social benefits are diffuse rather than specific to individuals, it is doubtful that universities are compensated for the full value they provide. As Sandy Baum, Professor of Economics at Skidmore College, has written, “We are all affected not only by the level and quality of our own education but also by that of those around us, who can communicate and work more effectively if they are well-educated. Moreover, even if there is no shortage of, for example, scientists, if the best potential scientists are unable to enter the field because of financial constraints, society is poorer than it could be.”

If this is in fact the case, what is to be done? Even strong proponents of laissez-faire economics usually accept limited market corrections in cases where costs and benefits are not optimally distributed. It is called “internalizing the externality,” fancy words for the practice of requiring would-be free riders to pay for the benefits they enjoy. One example is patent laws, which ensure that inventors are compensated for the full value of their innovations. But patent laws are an incomplete fix for academic research. Universities can receive patents for certain technical innovations, but not for more theoretical research. A good example is Harry Markowitz's creation of Modern Portfolio Theory, an important contribution that allowed Wall Street investors to minimize the risk associated with their investments. Copyrights protect against plagiarism, but not against the use of an idea. Imagine if leading biologists, psychologists, and economists received a royalty for every application of the advances they have made. Is there any doubt that they would rank far higher among the wealthiest people in the world?

Even strong proponents of laissez-faire economics usually accept limited market corrections in cases where costs and benefits are not optimally distributed.

Unsurprisingly, any plan to compensate academics for the full value of their ideas encounters huge practical difficulties. Many of these stem from the lack of a systematic way to determine the value and uniqueness of any piece of research. What individual would receive the benefit from a single breakthrough built on decades of others’ background work? Given that discoveries are not uncovered in distinct occurrences, but rather picked away at gradually, how could one determine when one idea is being implemented and not another? Would the incentive to pursue lines of research that are of definite practical value lead to the relegation of other research that, while more esoteric, is important in other ways? There are no easy answers to these questions.

The popularized stereotype of professors as frumpily dressed old men with their heads in the clouds is no accident. It is a byproduct of the near-clerical dedication society requires academics to assume with regard to their work. As Burton G. Malkiel, the hugely influential economist and former chair of the Princeton Economics Department, has written, “It is a peculiarity of the academic world that a professor is not supposed to make money... it’s unacademic... teachers are supposed to be ‘dedicated,’ or so politicians and administrators often say—especially when trying to justify the low academic pay scales. Academics are supposed to be seekers of knowledge, not of financial reward.”

Perhaps, then, it is time to closely examine the priorities that the free market has tacitly established, not so much in the interest of fairness, but rather to encourage the activity we value most.

After all–and I think Adam Smith would agree–you get what you pay for.

Timothy J. Ryan is a Research Assistant for the AEI-Brookings Election Reform Project.