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Funding Shocks and Optimal University Admissions and Financial Aid Policies

  • Matthew Nagler

    ()

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

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File URL: http://hdl.handle.net/10.1007/s11293-008-9116-z
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Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

Volume (Year): 36 (2008)
Issue (Month): 3 (September)
Pages: 345-358

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Handle: RePEc:kap:atlecj:v:36:y:2008:i:3:p:345-358
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  1. Michael Rizzo & Ronald G. Ehrenberg, 2004. "Resident and Nonresident Tuition and Enrollment at Flagship State Universities," NBER Chapters, in: College Choices: The Economics of Where to Go, When to Go, and How to Pay For It, pages 303-354 National Bureau of Economic Research, Inc.
  2. Mixon, Franklin Jr & Hsing, Yu, 1994. "The determinants of out-of-state enrollments in higher education: A tobit analysis," Economics of Education Review, Elsevier, vol. 13(4), pages 329-335.
  3. Ronald G. Ehrenberg & Daniel R. Sherman, 1984. "Optimal Financial Aid Policies for a Selective University," Journal of Human Resources, University of Wisconsin Press, vol. 19(2), pages 202-230.
  4. Balderston, Frederick, 1997. "Tuition and financial aid in higher education: The case of California," Economics of Education Review, Elsevier, vol. 16(3), pages 337-343, June.
  5. Rajindar Koshal & Manjulika Koshal, 2000. "State Appropriation and Higher Education Tuition: What is the relationship?," Education Economics, Taylor & Francis Journals, vol. 8(1), pages 81-89.
  6. Gary Fethke, 2006. "Subsidy and Tuition Policies in Public Higher Education," Economic Inquiry, Western Economic Association International, vol. 44(4), pages 644-655, October.
  7. Fethke, Gary, 2005. "Strategic determination of higher education subsidies and tuitions," Economics of Education Review, Elsevier, vol. 24(5), pages 601-609, October.
  8. Lowry, Robert C., 2001. "The effects of state political interests and campus outputs on public university revenues," Economics of Education Review, Elsevier, vol. 20(2), pages 105-119, April.
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