Competition in Funding Higher Education
AbstractIn 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 InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3588.
Date of creation: 2011
Date of revision:
higher education; funding competition; human capital formation;
Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
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