Peer Effects, Financial Aid, and Selection of Students into Colleges and Universities: An Empirical Analysis
AbstractThe goal of this paper is to develop predictions regarding market consequences of peer effects in higher education and to offer empirical evidence about the extent to which those predictions are borne out in the data. We develop a model in which colleges seek to maximize the quality of the educational experience provided to their students. From this model we deduce predictions about the hierarchy of schools that emerges in equilibrium, the allocation of students by income and ability among schools, and about the pricing policies that schools adopt. In the empirical analysis, we use both university-level data provided primarily by Petersons and student-level data from the National Postsecondary Student Aid Study obtained from the NCES. The findings of this paper suggest that there is a hierarchy of school qualities which is characterized by substantial stratification by income and ability. The evidence on pricing by ability is supportive of positive peer effects in educational achievement from high ability at the college level. However, the evidence on pricing also suggests that more highly ranked schools exercise some degree of market power. This is reflected in the substantial variation of price with income coupled with discounts to more able students that are modest at best.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 00-02.
Date of creation: 2000
Date of revision:
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Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
Phone: (919) 660-1800
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Web page: http://econ.duke.edu/
Other versions of this item:
- Holger Sieg & Dennis Epple & Richard Romano, 2003. "Peer effects, financial aid and selection of students into colleges and universities: an empirical analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(5), pages 501-525.
- I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
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