Government regulation of the market for higher education

A. Fridman and M. Verbetskaia
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A. Fridman: National Research University Higher School of Economics, Moscow, Russia
M. Verbetskaia: Erasmus University of Rotterdam, Rotterdam, Netherlands
Authors registered in the RePEc Author Service: Alla Friedman

Journal of the New Economic Association, 2020, vol. 45, issue 1, 12-43

Abstract: This paper presents a model of strategic competition between universities that accounts for the existence of positive spillover effect from education (peer effect). It was demonstrated that in the presence of peer effect strategic competition results in inefficient student allocation between the two universities (biased to the high-quality university) and excessive quality differentiation. The model is used to analyze the implications of government funding policies as well as admission and quality regulation. It was demonstrated that traditional schemes of institutional funding and students' financial aid programs like tuition fee subsidy, quality investment subsidy, or total cost subsidy reduce social welfare. At the same time, an introduction of provision of tuition-free education for the best students combined with a per-student grant provided to the university improves both students' and social welfare. It was also demonstrated that tight admission regulation is not socially desirable while the introduction of minimum quality standards makes society better off.

Keywords: higher education; strategic competition; peer effect; welfare (search for similar items in EconPapers)
JEL-codes: D43 H52 I22 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:nea:journl:y:2020:i:45:p:12-43

DOI: 10.31737/2221-2264-2020-45-1-1

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