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Equilibrium Tuition, Applications, Admissions and Enrollment in the College Market

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  • Chao Fu

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    (Department of Economics, University of Wisconsin, Madison)

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    Abstract

    I develop and estimate a structural equilibrium model of the college market. Students, having heterogeneous abilities and preferences, make college application decisions, subject to uncertainty and application costs. Colleges, observing only noisy measures of student ability, choose tuition and admissions policies to compete for more able students. Tuition, applications, admissions and enrollment are joint outcomes from a subgame perfect Nash equilibrium. I estimate the structural parameters of the model using data from the National Longitudinal Survey of Youth 1997, via a three-step procedure to deal with potential multiple equilibria. In counterfactual experiments, I use the model .rst to examine the extent to which college enrollment can be increased by expanding the supply of colleges, and then to assess the importance of various measures of student ability.

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    File URL: http://economics.sas.upenn.edu/system/files/12-013.pdf
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    Bibliographic Info

    Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 12-013.

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    Length: 54 pages
    Date of creation: 03 Jan 2012
    Date of revision:
    Handle: RePEc:pen:papers:12-013

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    Keywords: College market; tuition; applications; admissions; enrollment; discrete choice; market equilibrium; multiple equilibria; estimation;

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    1. Stacy Berg Dale & Alan B. Krueger, 2002. "Estimating The Payoff To Attending A More Selective College: An Application Of Selection On Observables And Unobservables," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(4), pages 1491-1527, November.
    2. Peter Arcidiacono & Sean Nicholson, 2002. "Peer Effects in Medical School," NBER Working Papers 9025, National Bureau of Economic Research, Inc.
    3. Christopher Avery & Jonathan Levin, 2010. "Early Admissions at Selective Colleges," American Economic Review, American Economic Association, American Economic Association, vol. 100(5), pages 2125-56, December.
    4. Erik Meijer & Jelmer Ypma, 2008. "A Simple Identification Proof for a Mixture of Two Univariate Normal Distributions," Journal of Classification, Springer, Springer, vol. 25(1), pages 113-123, June.
    5. Dennis Epple & Richard Romano & Holger Sieg, 2006. "Admission, Tuition, and Financial Aid Policies in the Market for Higher Education," Econometrica, Econometric Society, Econometric Society, vol. 74(4), pages 885-928, 07.
    6. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, Elsevier, vol. 60(2), pages 241-276, August.
    7. Keane, Michael P & Wolpin, Kenneth I, 2001. "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1051-1103, November.
    8. Andrea Moro, 2003. "The Effect Of Statistical Discrimination On Black-White Wage Inequality: Estimating A Model With Multiple Equilibria," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 467-500, 05.
    9. Jessica S. Howell, 2010. "Assessing the Impact of Eliminating Affirmative Action in Higher Education," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 28(1), pages 113-166, 01.
    10. Peter Arcidiacono, 2005. "Affirmative Action in Higher Education: How Do Admission and Financial Aid Rules Affect Future Earnings?," Econometrica, Econometric Society, Econometric Society, vol. 73(5), pages 1477-1524, 09.
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