Subsidizing Enjoyable Education

Robert Dur () and Amihai Glazer

No CESifo Working Paper No. 1560, CESifo Working Paper Series from CESifo Group Munich

Abstract: We explain why means-tested college tuition and means-tested government grants to college students can be efficient. The critical idea is that attending college is both an investment good and a consumption good. If education has a consumption benefit and tuition is uniform, the marginal rich student is less smart than some poor people who choose not to attend college, thus reducing the social returns to education and increasing the college’s cost of education. We find that competition among profit-maximizing colleges results in means-tested tuition. In addition, to maximize the social returns to education government should means-test grants. We thus provide a rationale for means-tested tuition and grants which relies neither on capital market imperfections nor on redistributive objectives.

Keywords: tuition policy; education subsidies; self-selection (search for similar items in EconPapers)
JEL-codes: H52 I20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-edu, nep-hrm and nep-pbe
Date: 2005
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Related works:
Working Paper: Subsidizing Enjoyable Education (2007)
Journal Article: Subsidizing Enjoyable Education (2008)
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