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Education and Borrowing Constraints: Tests Vs. Prices

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Fernández, Raquel

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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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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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Related research
Keywords: Borrowing Constraints; Education; exams; Markets;

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Find related papers by JEL classification:
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

References listed on IDEAS
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  3. Sangeeta Pratap & Silvio Rendón, 1996. "Firm Investment in Imperfect Capital Markets: A Structural Estimation," Economics Working Papers 274, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 1998. [Downloadable!]
    Other versions:
  4. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 813-34, August.
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  6. Rothschild, Michael & White, Lawrence J, 1995. "The Analytics of the Pricing of Higher Education and Other Services in Which the Customers Are Inputs," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 573-86, June. [Downloadable!] (restricted)
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  11. Fernandez, Raquel & Rogerson, Richard, 1996. "Income Distribution, Communities, and the Quality of Public Education," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 135-64, February. [Downloadable!] (restricted)
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  18. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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 12, Department of Economics, University of Girona. [Downloadable!]
  2. Murat F. Iyigun & Andrew T. Levin, 1998. "Macroeconomic implications of competitive college admissions," International Finance Discussion Papers 613, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  3. Tania Oliveira, 2006. "Tuition fees and admission standards: how do public and private universities really compete for students?," Discussion Papers in Economics 06/6, Department of Economics, University of Leicester. [Downloadable!]
  4. Andrea M. Weber, 2006. "Educational Effects of Alternative Secondary School Tracking Regimes in Germany," Darmstadt Discussion Papers in Economics 176, Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology). [Downloadable!]
    Other versions:
  5. Jimmy Chan & Erik Eyster, 2002. "Admission Impossible? Self Interest and Affirmative Action," Economics Working Paper Archive 479, The Johns Hopkins University,Department of Economics. [Downloadable!]
  6. Mühlenweg, Andrea Maria, 2007. "Educational Effects of Early or Later Secondary School Tracking in Germany," ZEW Discussion Papers 07-079, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  7. Murat F. Iyigun & Andrew T. Levin, 1998. "What determines public support for affirmative action?," International Finance Discussion Papers 620, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
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