Education and Borrowing Constraints: Tests vs. Prices
AbstractThis 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 analyzed 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 InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6588.
Date of creation: Jun 1998
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Other versions of this item:
- Fernández, Raquel, 1998. "Education and Borrowing Constraints: Tests Vs. Prices," CEPR Discussion Papers 1913, C.E.P.R. Discussion Papers.
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-PUB-1998-06-15 (Public Finance)
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