Higher education fees as signals

Steven Bosworth

No em-dp2019-16, Economics Discussion Papers from Department of Economics, University of Reading

Abstract: This paper argues that the fees paid for a degree may reveal private information about ability. In contrast with traditional signalling models, degrees need not be costlier for low-ability workers to acquire. This result follows when the labour market learns workers' types with delay, but only if their job requires high ability. Fees induce a separating equilibrium when they exceed the benefit of a low ability worker "passing" as high ability early in their career but are less than the life cycle penalty which high ability types would suffer. Raising fees in this setting exacerbates rather than ameliorates inefficient credentialing.

Keywords: signalling; employer learning; tuition fees (search for similar items in EconPapers)
JEL-codes: D82 I26 I28 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2019-08-19
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