Dynamic Adjustment in the U.S. Higher Education Industry, 1955--1997

John E. Kwoka, Jr. () and Christopher Snyder

Review of Industrial Organization, 2004, vol. 24, issue 4, 355-378

Abstract: We analyze how the number of higher education institutions responds to demand growth by applying a dynamic model to U.S. data over the period 1955--1997. We derive our dynamic, partial adjustment model from first principles under various assumptions about firm behavior, ranging from profit-maximization by Cournot firms to output-maximization by non-profit firms. Empirical estimates from this dynamic model suggest that the higher education industry does indeed respond to demand growth, but only moderately in the short run and little more in the long run. Certain segments within the overall industry exhibit much stronger responsiveness in the short and long run, in particular, public and 2-year schools.

Date: 2004
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