Private universities, as opposed to publicly financed ones, are dominant in some countries and almost non-existent in others. We develop a dynamic model to demonstrate that private providers emerge as soon as they can profitably sell an elite signal to the most highly talented. As private providers engage in cream skimming, the returns to publicly provided education decreases, but the average return to higher education increases because of the signaling benefit created. We use numerical simulations to demonstrate the dynamic implications of our model, and provide some basic empirical evidence in support of the theory presented
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Paper provided by Lund University, Department of Economics in its series Working Papers with number
2005:2.
Length: 19 pages Date of creation: 11 Jan 2005 Date of revision: Handle: RePEc:hhs:lunewp:2005_002
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Find related papers by JEL classification: H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education I22 - Health, Education, and Welfare - - Education - - - Educational Finance
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