The Role of Colleges within the Higher Education Sector

Bernhard Eckwert and Itzhak Zilcha

No 7135, CESifo Working Paper Series from CESifo

Abstract: Over the past decades the college sectors in the higher education systems of many Western countries have expanded their capacities massively. This happened even though colleges have been at a competitive disadvantage with universities which are publicly subsidized, while colleges must self-finance through tuition fees. The question arises how, in equilibrium, a diverse student population is allocated between these institutions and whether the resulting human capital accumulation process is efficient. Our paper explores these questions within an information-based theoretical framework. Individuals are screened for their (unobservable) innate abilities, and the precision of the screening mechanism, which is endogenous, balances demand and supply of educational services. We find that in the short term, when the college capacity is fixed, college subsidies are not desirable in most cases. In the long term, the college sector may expand excessively thereby establishing inefficiently low screening standards in the admission process to higher education.

Keywords: higher education; college expansion; equilibrium screening mechanism; efficiency (search for similar items in EconPapers)
JEL-codes: D80 I21 I23 I25 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-edu
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Related works:
Journal Article: The role of colleges within the higher education sector (2020)
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