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Subsidy and Tuition Policies in Public Higher Education

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  • Gary Fethke
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    Abstract

    Although public appropriations to higher education and tuition rates are set under alternative arrangements, the optimal allocation is readily achievable. The decentralized linear-subsidy case produces an externality that reduces joint welfare below the centralized (first-best) case, but when vertical constraints are added or bilateral bargaining occurs, tuition maximizes joint surplus. Specifications differ in the subsidy's assigned role, which varies from affecting tuition directly to being indeterminate under Nash bargaining. When marginal cost of education is nondecreasing, the ratio of nonresident to resident tuition declines with increases in the demand for education and with decreases in the state budget. (JEL D4, I2) Copyright 2006, Oxford University Press.

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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 44 (2006)
    Issue (Month): 4 (October)
    Pages: 644-655

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    Handle: RePEc:oup:ecinqu:v:44:y:2006:i:4:p:644-655

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    Cited by:
    1. Matthew Nagler, 2008. "Funding Shocks and Optimal University Admissions and Financial Aid Policies," Atlantic Economic Journal, International Atlantic Economic Society, vol. 36(3), pages 345-358, September.
    2. Jan Bouckaert & Bruno De Borger, 2013. "Price competition between subsidized organizations," Journal of Economics, Springer, vol. 109(2), pages 117-145, June.

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