Bureaucratic rent creation: the case of price discrimination in the market for postsecondary education

Peter K. Hazlett () and Chandler S. Reilly ()
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Peter K. Hazlett: George Mason University
Chandler S. Reilly: George Mason University

Constitutional Political Economy, 2023, vol. 34, issue 2, No 5, 226-256

Abstract: Abstract Under political competition, bureaucrats who wish to maintain their jobs and salaries must continue to stimulate demand for their agency’s services in order to secure funding. This paper suggests that one way a bureau can do so is by creating avenues for private entities to collect rents through entrepreneurial action. The Federal Student Aid office in the U.S. Department of Education and their Free Application for Federal Student Aid (FAFSA) can serve as an example. By getting students to fill out a FAFSA application, colleges obtain the detailed financial information of students and families. Colleges can then use this information to price discriminate. The bureau’s derived benefits from this behavior are two-fold: (1) Private interests groups can lobby political sponsors to continue funding the agency. Using data obtained from lobbying reports filed with the federal government, we find that there is a positive relationship between lobbying expenditures and the implementation of regulations that enhance the value of the rents associated with the FAFSA. (2) The source of the rents can be used as a performance indicator to meet the demands of political sponsors. Drawing from the 5-year strategic plans from the Department of Education and the Federal Student Aid office, we find that these bureaus can benefit from engaging in such behavior.

Keywords: Bureaucratic competition; Political entrepreneurship; Rent creation; Postsecondary education; B530; D720; D730; I220 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10602-022-09365-x

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