Educational Inequality and Reservation Policy in Developing Markets

Weining Bao (), Jian Ni () and Shubhranshu Singh ()
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Weining Bao: School of Business, University of Connecticut, Storrs, Connecticut 06268
Jian Ni: Pamplin College of Business, Virginia Tech, Blacksburg, Virginia 24061
Shubhranshu Singh: Carey Business School, Johns Hopkins University, Baltimore, Maryland 21202

Management Science, 2024, vol. 70, issue 5, 3162-3181

Abstract: Educational inequality undermines the pivotal role of education in increasing the ability of the poor to move up the income ladder. This paper investigates educational inequality that arises from low-income students’ lack of monetary resources that higher-income students invest in education. We show low-income students’ inability to make monetary investments in education reduces their incentive to study and contributes to educational inequality. In the context of developing markets, we study implications of a reservation policy that aims to reduce inequality by reserving some college seats for students of the disadvantaged group. The policy essentially transfers college seats from the advantaged student group to the disadvantaged student group and as a result increases the welfare of students from the disadvantaged group. In some cases, the seat transfer also improves the welfare of higher-income students. We show such a transfer, if small, can enhance overall student welfare in developing markets. However, a large transfer may reduce overall student welfare. Finally, we show the welfare-maximizing transfer is usually smaller than inequality-minimizing transfer of seats.

Keywords: education; reservation policy; developing markets; moral hazard; poverty (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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