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Competition in Funding Higher Education

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  • Bernhard Eckwert
  • Itzhak Zilcha

Abstract

In higher education pure credit market funding leads to underinvestment while income-contingent loans funding tends to produce overinvestment. We analyze whether a market structure in which both funding schemes coexist and compete against each other might restore efficiency of the educational investment process. In the absence of government intervention, we find that funding competition does not rectify the investment inefficiency nor will it improve pooling of individual income risks. However, a policy which allows the two financing schemes to compete and which, at the same time, restricts access to higher education can achieve investment efficiency and improve risk pooling. We find that the equilibrium with funding competition and restricted participation yields the highest level of social welfare.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3588.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3588

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Related research

Keywords: higher education; funding competition; human capital formation;

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References

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  1. Eckwert, Bernhard & Zilcha, Itzhak, 2010. "Improvement in information and private investment in education," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 585-597, April.
  2. Jerik Hanushek & Dennis Kimko, 2006. "Schooling, Labor-force Quality, and the Growth of Nations," Educational Studies, Higher School of Economics, issue 1, pages 154-193.
  3. Lleras,Miguel Palacios, 2004. "Investing in Human Capital," Cambridge Books, Cambridge University Press, number 9780521828406, April.
  4. Nicholas Barr & Iain Crawford, 1998. "Funding Higher Education in an Age of Expansion," Education Economics, Taylor & Francis Journals, vol. 6(1), pages 45-70.
  5. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  6. Robert J. Gary-Bobo & Alain Trannoy, 2008. "Efficient Tuition Fees and Examinations," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1211-1243, December.
  7. Feldman, Mark & Gilles, Christian, 1985. "An expository note on individual risk without aggregate uncertainty," Journal of Economic Theory, Elsevier, vol. 35(1), pages 26-32, February.
  8. Bruce Chapman, 2005. "Income Contingent Loans for Higher Education: International Reform," CEPR Discussion Papers 491, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  9. Nerlove, Marc L, 1975. "Some Problems in the Use of Income-contingent Loans for the Finance of Higher Education," Journal of Political Economy, University of Chicago Press, vol. 83(1), pages 157-83, February.
  10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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