Education and Borrowing Constraints: Tests Vs. Prices

Raquel Fernandez

No 1913, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper examines the properties of exams and markets as alternative allocation devices under borrowing constraints. Exams dominate markets in terms of matching efficiency. Whether aggregate consumption is greater under exams than under markets depends on the power of the exam technology; for a sufficiently powerful test, exams dominate markets in terms of aggregate consumption as well. The positive effects of income taxation are analysed and the optimal allocation scheme when wealth is observable is derived. The latter consists of a fellowship scheme, in which markets set school prices but the government gives out fellowships, based on need and the ability to obtain a given exam score.

Keywords: Borrowing Constraints; Education; exams; Markets (search for similar items in EconPapers)
JEL-codes: D52 E44 J41 (search for similar items in EconPapers)
Date: 1998-07
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Education and Borrowing Constraints: Tests vs Prices (1998)
Working Paper: Education and Borrowing Constraints: Tests vs. Prices (1998)
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