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Education and Borrowing Constraints: Tests Vs. Prices

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  • Fernández, Raquel

Abstract

This paper examines the properties of exams and markets as alternative allocation devices under borrowing constraints. Exams dominate markets in terms of matching efficiency. Whether aggregate consumption is greater under exams than under markets depends on the power of the exam technology; for a sufficiently powerful test, exams dominate markets in terms of aggregate consumption as well. The positive effects of income taxation are analysed and the optimal allocation scheme when wealth is observable is derived. The latter consists of a fellowship scheme, in which markets set school prices but the government gives out fellowships, based on need and the ability to obtain a given exam score.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1913.

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Date of creation: Jul 1998
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Handle: RePEc:cpr:ceprdp:1913

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Keywords: Borrowing Constraints; Education; exams; Markets;

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References

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  1. Fernández, Raquel & Galí, Jordi, 1997. "To Each According To...? Markets, Tournaments, and the Matching Problem with Borrowing Constraints," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1627, C.E.P.R. Discussion Papers.
  2. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
  3. Daron Acemoglu, 1995. "Matching, Heterogeneity and the Evolution of Income Distribution," Working papers 95-25, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(6), pages 1153-89, December.
  5. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
  6. Fernandez, Raquel & Rogerson, Richard, 1996. "Income Distribution, Communities, and the Quality of Public Education," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(1), pages 135-64, February.
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Cited by:
  1. Weber, Andrea M., 2006. "Educational Effects of Alternative Secondary School Tracking Regimes in Germany," Hannover Economic Papers (HEP) dp-353, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  2. Murat F. Iyigun & Andrew T. Levin, 2003. "What Determines Public Support for Affirmative Action?," Southern Economic Journal, Southern Economic Association, vol. 69(3), pages 612-627, January.
  3. del Rey, Elena & Romero, Laura, 2004. "Prices versus Exams as Strategic Instruments for Competing Universities," Working Papers of the Department of Economics, University of Girona, Department of Economics, University of Girona 12, Department of Economics, University of Girona.
  4. Laura Romero & Elena del Rey, 2004. "Competition Between Public And Private Universities: Quality, Prices And Exams," Economics Working Papers we046423, Universidad Carlos III, Departamento de Economía.
  5. Laura Romero, 2005. "On the role of borrowing constraints in public and private universities' choices," Economics Bulletin, AccessEcon, vol. 9(6), pages 1-8.
  6. Jimmy Chan & Erik Eyster, 2002. "Admission Impossible? Self Interest and Affirmative Action," Economics Working Paper Archive 479, The Johns Hopkins University,Department of Economics.
  7. Guilhem Lecouteux & Léonard Moulin, 2013. "From welfare to preferences, do decision flaws matter? The case of tuition fees," Working Papers hal-00807687, HAL.
  8. Murat F. Iyigun & Andrew T. Levin, 1998. "Macroeconomic implications of competitive college admissions," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 613, Board of Governors of the Federal Reserve System (U.S.).

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