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A low-subsidy problem in public higher education

  • Fethke, Gary
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    With an exogenous public subsidy and a break-even restriction on university net revenue, tuition discrimination supports a quasi-efficient departure from marginal-cost pricing. In contrast, when the legislature and university interact in their subsidy and tuition decisions, the public subsidy becomes endogenous. With an endogenous public subsidy, support by legislatures is affected by the same factors that influence tuition; this leads to a situation where higher tuition revenue is accompanied by a lower public subsidy. The welfare of students declines when this "low-subsidy" case develops. The university's ability to address this issue depends on its being able to commit to a tuition policy, and credible commitment appears consistent with existing institutional conditions.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0272775711000045
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    Article provided by Elsevier in its journal Economics of Education Review.

    Volume (Year): 30 (2011)
    Issue (Month): 4 (August)
    Pages: 617-626

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    Handle: RePEc:eee:ecoedu:v:30:y:2011:i:4:p:617-626
    Contact details of provider: Web page: http://www.elsevier.com/locate/econedurev

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    10. Fethke, Gary, 2005. "Strategic determination of higher education subsidies and tuitions," Economics of Education Review, Elsevier, vol. 24(5), pages 601-609, October.
    11. Michael S. Christian, 2007. "Liquidity constraints and the cyclicality of college enrollment in the United States," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 141-169, January.
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