Is there an Education Bubble in the Western Balkans?

Bubbles arise in cases where price exceeds the asset's intrinsic value, yet they are notoriously hard to detect. In order for them to develop, a displacement in expectations must occur which will impact the rational perception of the asset's value. Human capital, although not as tangible as other forms of wealth, represents a distinct asset class which increases one's earning potential through education. As the price of an asset is justified by the expectations of future cash flows, the current value of education can be calculated via discounting the value of the future, education-enhanced, earning potential. The aim of this paper is to analyze the newly emerging patterns in the changing educational landscape of the region known as the Western Balkans and identify the possible formation, if not existence, of a bubble. The authors propose an alternative methodology of detecting these market anomalies and utilize empirical evidence to corroborate the finding that the market price of the investment in human capital in Western Balkan countries has started diverging from its fundamental value. Although the focus of this paper is on uncovering a tendency in a highly specific asset class within a narrow geographical area, the preliminary conclusions and related discussions can be extended to detecting such bubbles in other countries and regions that could possibly warn against the eruption of the next big financial crisis.