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University choice, peer group and distance

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  • B. Cesi
  • D. Paolini

    ()

Abstract

We analyze how authorizing a new university affects welfare when the students’ education depends on the peer group effect. Students are horizontally differentiated according to their ability and the distance from the university. Comparing a monopolistic university with a two-universities model we find that allowing a “new” university is welfare improving when the monopolistic university is only attended by able students with less mobility constraints. This occurs when mobility costs are sufficiently high. When mobility costs are low, a negative externality arises and welfare decreases. The negative externality comes through the peer group effect - high ability students that would have gone to the monopolistic university go to the university with the lower average ability. These students end up in a university with students whose ability was not high enough to go to the monopolist. On the other hand, students remaining in the good university benefit from a lower average ability. Thus, a new university is welfare improving only for those with low ability that in the monopolistic scenario would remain unskilled. When, instead, the mobility cost is high, the monopolist leaves out a significative mass of individuals. In this case, no negative externality arises because no student swaps university therefore a "new" university is welfare improving. However, this welfare improvement makes the opportunities for a higher education less equal (according to Romer, 1998) because an "external circumstance" like mobility cost, rather than own ability, becomes the main determinant of the students’ human capital.

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Bibliographic Info

Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 201101.

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Date of creation: 2011
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Handle: RePEc:cns:cnscwp:201101

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Related research

Keywords: peer group quality; mobility costs; universities;

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References

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  1. Giorgio Brunello & Maria De Paola & Vincenzo Scoppa, 2009. "Peer Effects in Higher Education: Does the Field of Study Matter?," "Marco Fanno" Working Papers 0092, Dipartimento di Scienze Economiche "Marco Fanno".
  2. Carla S� & Raymond J.G.M. Florax & Piet Rietveld, 2004. "Does Accessibility to Higher Education matter? Choice Behavior of High School Graduates in the Netherlands," Tinbergen Institute Discussion Papers 04-061/3, Tinbergen Institute.
  3. De Fraja, Gianni & Iossa, Elisabetta, 2002. "Competition among Universities and the Emergence of the Elite Institution," Bulletin of Economic Research, Wiley Blackwell, vol. 54(3), pages 275-93, July.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Does it make sense to open new universities?
    by Economic Logician in Economic Logic on 2011-03-03 15:51:00
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Cited by:
  1. Stefano STAFFOLANI & Claudia PIGINI, 2012. "Enrolment Decision and University Choice;of Italian Secondary School Graduates," Working Papers 380, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  2. Pigini, Claudia & Staffolani, Stefano, 2013. "Enrollment costs, university quality and higher education choices in Italy," MPRA Paper 50364, University Library of Munich, Germany.

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  1. Economic Logic blog

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