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Funding Shocks and Optimal University Admissions and Financial Aid Policies

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  • Matthew Nagler

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Abstract

A positive shock to funding, such as a major donation, causes an optimizing university to raise its admissions standards and reduce tuition charges net of financial aid across all student categories. However, the shock’s effect on enrollment may not be uniform. Student categories given little weight in the university’s objective function may be treated as inferior goods; that is, positive shocks decrease their enrollments, while other student categories’ enrollments are increased. The paper’s findings shed light on the effect of federal direct-to-student aid on tuition levels, permitting a new perspective on William Bennett’s controversial hypothesis that aid accommodates tuition hikes. Copyright International Atlantic Economic Society 2008

Suggested Citation

  • Matthew Nagler, 2008. "Funding Shocks and Optimal University Admissions and Financial Aid Policies," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 36(3), pages 345-358, September.
  • Handle: RePEc:kap:atlecj:v:36:y:2008:i:3:p:345-358
    DOI: 10.1007/s11293-008-9116-z
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    More about this item

    Keywords

    Educational finance; Financial aid policy; Resource allocation; Utility maximization models; I22; L31;

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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