Efficient Tuition & Fees, Examinations and Subsidies
31 Pages Posted: 24 Aug 2005
Date Written: April 2005
Abstract
A student's future log-wage is given by the sum of a skill premium and a random personal 'ability' term. Students observe only a private, noisy signal of their ability, and universities can condition admission decisions on the results of noisy tests. We assume first that universities are maximizing social surplus, and contrast the results with those obtained when they maximize rents. If capital markets are perfect, and if test results are public knowledge, then, there is no sorting on the basis of test scores. Students optimally self-select as a result of pricing only. In the absence of externalities generated by an individual's higher education, the optimal tuition is then greater than the university's marginal cost. If capital markets are perfect but asymmetries of information are bilateral, i.e., if universities observe a private signal of each student's ability, or if there are borrowing constraints, then, the optimal policy involves a mix of pricing and pre-entry selection based on the university's private information. Optimal tuition can then be set below marginal cost, and can even become negative, if the precision of the university's private assessment of students' abilities is high enough.
Keywords: Tuition fees, examinations, state subsidies, higher education, incomplete information
JEL Classification: D82, H42, I22, J24
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Guide to Reform of Higher Education: A European Perspective
By Bas Jacobs and Rick Van Der Ploeg
-
Efficient Tuition Fees, Examinations, and Subsidies
By Robert J. Gary-bobo and Alain Trannoy
-
Returns to the Market: Valuing Human Capital in the Post-Transition Czech and Slovak Republics
By Randall K. Filer, Stepan Jurajda, ...
-
Responses of Private and Public Schools to Voucher Funding: The Czech and Hungarian Experience
By Daniel Munich and Randall K. Filer
-
Responses of Private and Public Schools to Voucher Funding: The Czech and Hungarian Experience
By Randall K. Filer and Daniel Munich
-
Differential Grading Standards and University Funding: Evidence from Italy
By Manuel Bagues, Mauro Sylos Labini, ...
-
Income Tax, Consumption Value of Education, and the Choice of Educational Type
-
Participation and Schooling in a Public System of Higher Education
By Stijn Kelchtermans and Frank Verboven