Reducing Product Diversity in Higher Education

Frank Verboven and Stijn Kelchtermans

No 6508, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Public systems of higher education have recently attempted to cut costs by providing financial incentives to institutions who reduce the diversity of their programs. We study the profit and welfare effects of reducing product diversity in higher education, against the background of a funding system reform in Flanders (Belgium). We find that dropping duplicated programs at individual institutions tends to be socially undesirable, due to the limited fixed cost and variable cost savings and the students' low willingness to travel to other institutions. Furthermore, we find that the financial incentives offered to drop programs may be very ineffective, leading to both undesirable reform and undesirable status quo. These findings emphasize the complexities in regulating product diversity in higher education, and serve as a word of caution towards the various decentralized financial incentive schemes that have recently been introduced.

Keywords: Higher education; Product diversity (search for similar items in EconPapers)
JEL-codes: C25 I2 I23 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-edu, nep-hrm and nep-sog
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Working Paper: Reducing product diversity in higher education (2007)
Working Paper: Reducing product diversity in higher education (2007)
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