Higher Education and the Market

Neoclassical economists make the case for profit seeking firms in the private sector because they supply goods and services efficiently, meeting consumer demand at the least possible price and the highest quality. The government also supplies some goods and services directly, and also has made provisions for non-profit firms to do so, recognizing that in some cases for-profit firms will not supply them efficiently, because of a variety of market failures. In the United States, higher education has been one of those services that has traditionally been supplied to a large extent by non-profits and the government sector, and not by the for-profit sector. Over the last few decades, that has been changing radically, with much of the growth in enrollments in higher education taking place in the for-profit sector. Understanding the evolving roles of for-profits, non-profits and the public sector in the provision of higher education over the past several decades is important because they can have public policy implications. The government’s response to market failure, in particular, has welfare implications for both individuals and society.