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The University in the Marketplace: Some Insights and Some Puzzles

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Author Info
Michael Rothschild
Lawrence J. White

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Abstract

Higher education has many of the attributes of a competitive industry. Many enterprises compete for inputs and sell similar outputs to a great variety of buyers. The competitive perspective has not been much used in the analysis of higher education. In this paper we find such a point of view yields both insights and puzzles. The familiar "stand alone" test from industrial organization casts doubt on the claim that undergraduate education subsidizes graduate education in the large research university; since institutions that sell both graduate and undergraduate education survive in competition with institutions that sell only undergraduate education, the claim of cross subsidization is hard to maintain. We note that the analysis of the use of prices to regulate admission to universities is complex because students are both inputs and outputs of the educational process. We note, but do not explain, some conspicuous failures of universities to use incentives and prices. Perhaps most interesting are the failures of research universities to reward excellent teaching (which has a clear" market value) and the failure of elite institutions, particularly professional schools, to exploit their preeminent market positions by charging a tuition which begins to capture the rents that graduation confers.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3853.

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Date of creation: Sep 1991
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Publication status: published as Studies of Supply and Demand in HIgher Education Edited by Charles T. Clotfelter and Michael Rothschild The University of Chicago Press: 1993, pp. 11-37
Handle: RePEc:nbr:nberwo:3853

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  1. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December. [Downloadable!] (restricted)
  2. Jorgenson, D.W. & Fraumeni, B.M., 1991. "The Output Of The Education Sector," Harvard Institute of Economic Research Working Papers 1543, Harvard - Institute of Economic Research.
  3. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  4. Oi, Walter Y, 1971. "A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 85(1), pages 77-96, February. [Downloadable!] (restricted)
  5. Nelson, Richard R & Winter, Sidney G & Schuette, Herbert L, 1976. "Technical Change in an Evolutionary Model," The Quarterly Journal of Economics, MIT Press, vol. 90(1), pages 90-118, February. [Downloadable!] (restricted)
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