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On the role of borrowing constraints in public and private universities' choices

Author

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  • Laura Romero

    (Universidad Carlos III de Madrid and Universidad de Malaga)

Abstract

We investigate the reasons why universities use different combinations of fees and exams to guide admission decisions, focusing on the role of borrowing constraints on such decisions. On the one hand, we show that public universities choose exams and zero fees under borrowing constraints because exams are efficient allocation devices, and the objective of public institutions is the maximization of surplus. On the other hand, private universities prefer the use of fees to guide admission policies since tuition fees are not only an allocation device but also a source of revenues. Interestingly, we find that while borrowing constraints do not affect quality and admission standards in the public university, they reduce both quality and fees in the private.

Suggested Citation

  • Laura Romero, 2005. "On the role of borrowing constraints in public and private universities' choices," Economics Bulletin, AccessEcon, vol. 9(6), pages 1-8.
    • Handle: RePEc:ebl:ecbull:eb-05i20002
    as

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    References listed on IDEAS

    as
    1. Raquel Fernandez, 1998. "Education and Borrowing Constraints: Tests vs. Prices," NBER Working Papers 6588, National Bureau of Economic Research, Inc.
    2. Romero, Laura & Rey, Elena del, 2004. "Competition between public and private universities: quality, prices and exams," UC3M Working papers. Economics we046423, Universidad Carlos III de Madrid. Departamento de Economía.
    3. Gordon C. Winston, 1999. "Subsidies, Hierarchy and Peers: The Awkward Economics of Higher Education," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 13-36, Winter.
    4. Rothschild, Michael & White, Lawrence J, 1995. "The Analytics of the Pricing of Higher Education and Other Services in Which the Customers Are Inputs," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 573-586, June.
    5. Eric A. Hanushek & Charles Ka Yui Leung & Kuzey Yilmaz, 2014. "Borrowing Constraints, College Aid, and Intergenerational Mobility," Journal of Human Capital, University of Chicago Press, vol. 8(1), pages 1-41.
    6. Dennis Epple & Richard Romano & Holger Sieg, 2006. "Admission, Tuition, and Financial Aid Policies in the Market for Higher Education," Econometrica, Econometric Society, vol. 74(4), pages 885-928, July.
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    Cited by:

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    More about this item

    Keywords

    borrowing constraints.;

    JEL classification:

    • I2 - Health, Education, and Welfare - - Education

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