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Efficient Tuition Fees and Examinations

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  • Robert J. Gary-Bobo
  • Alain Trannoy

Abstract

We assume that students observe only a private, noisy signal of their ability and that universities can condition admission decisions on the results of noisy tests. If the university observes a private signal of each student's ability, which is soft information, then asymmetries of information are two-sided, and the optimal admission policy involves a mix of pricing and pre-entry selection, based on the university's private information. In contrast, if all test results are public knowledge, then there is no sorting on the basis of test scores: Tuition alone does the job of implementing an optimal degree of student self-selection. These results do not depend on the existence of peer effects. The optimal tuition follows a classic marginal social-cost pricing rule. (JEL: D82, H42, I22, J24) (c) 2008 by the European Economic Association.

Suggested Citation

  • Robert J. Gary-Bobo & Alain Trannoy, 2008. "Efficient Tuition Fees and Examinations," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1211-1243, December.
  • Handle: RePEc:tpr:jeurec:v:6:y:2008:i:6:p:1211-1243
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    Cited by:

    1. Pietro Garibaldi & Francesco Giavazzi & Andrea Ichino & Enrico Rettore, 2012. "College Cost and Time to Complete a Degree: Evidence from Tuition Discontinuities," The Review of Economics and Statistics, MIT Press, vol. 94(3), pages 699-711, August.
    2. Guilhem Lecouteux & Léonard Moulin, 2013. "From welfare to preferences, do decision flaws matter? The case of tuition fees," Working Papers hal-00807687, HAL.
    3. Philippe De Donder & Francisco Martinez-Mora, 2015. "On the Political Economy of University Admission Standards," Discussion Papers in Economics 15/11, Department of Economics, University of Leicester.
    4. Meier, Volker & Schiopu, Ioana, 2015. "Optimal higher education enrollment and productivity externalities in a two-sector model," Journal of Public Economics, Elsevier, pages 1-13.
    5. De Fraja, Gianni & Valbonesi, Paola, 2012. "The design of the university system," Journal of Public Economics, Elsevier, vol. 96(3), pages 317-330.
    6. Blankenau, William F. & Gao, Yuan, 2014. "Admission standards, student effort, and the creation of skilled jobs," Economic Modelling, Elsevier, vol. 43(C), pages 209-216.
    7. Ehlers, Tim, 2011. "University graduation dependent on family's wealth, ability and social status," Center for European, Governance and Economic Development Research Discussion Papers 120, University of Goettingen, Department of Economics.
    8. Hellier, Joël, 2017. "Stratified higher education,social mobility at the top and efficiency: The case of the French ‘Grandes écoles’," MPRA Paper 76724, University Library of Munich, Germany.
    9. Guilhem Lecouteux & Léonard Moulin, 2015. "To gain or not to lose? Tuition fees for loss averse students," Economics Bulletin, AccessEcon, vol. 35(2), pages 1005-1019.
    10. Philippe Batifoulier & Denis Abecassis & Nicolas Da Silva & Victor Duchesne & Léonard Moulin, 2016. "L’utilité sociale de la dépense publique," CEPN Working Papers hal-01421197, HAL.
    11. Marisa Hidalgo Hidalgo & Guadalupe Valera Blanes, 2013. "University merging process," Working Papers. Serie AD 2013-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    12. David Flacher & Hugo Harari-Kermadec & Léonard Moulin, 2011. "Contributory education scheme: Theoretical basis and application," Investigaciones de Economía de la Educación volume 6,in: Antonio Caparrós Ruiz (ed.), Investigaciones de Economía de la Educación 6, edition 1, volume 6, chapter 30, pages 495-502 Asociación de Economía de la Educación.
    13. repec:hal:journl:dumas-00909926 is not listed on IDEAS
    14. Alessandro Cigno & Annalisa Luporini, 2013. "Student loans and the allocation of graduate jobs," Working Papers - Economics wp2013_15.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    15. Marie-Laure Cabon-Dhersin & Jonas Didisse, 2017. "Inter-university competition and high tuition fees," Working Papers halshs-01174291, HAL.
    16. Maria De Paola & Vincenzo Scoppa, 2010. "A signalling model of school grades under different evaluation systems," Journal of Economics, Springer, vol. 101(3), pages 199-212, November.
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    19. repec:eee:pubeco:v:154:y:2017:i:c:p:1-9 is not listed on IDEAS
    20. Dur, Robert & Glazer, Amihai, 2008. "Subsidizing Enjoyable Education," Labour Economics, Elsevier, vol. 15(5), pages 1023-1039, October.
    21. De Donder, Philippe & Martinez-Mora, Francisco, 2017. "The political economy of higher education admission standards and participation gap," Journal of Public Economics, Elsevier, vol. 154(C), pages 1-9.
    22. Elise S. Brezis & Joël Hellier, 2017. "Social Mobility at the Top and the Higher Education System," Working Papers 2017-04, Bar-Ilan University, Department of Economics.
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    24. Rappai, Gábor & Rekettye, Gábor, 2011. "Pricing Policies at Public Universities in Hungary," Apas Papers 350, Academic Public Administration Studies Archive - APAS.
    25. Elisa S. Brezis & Joel Hellier, 2016. "Social Mobility and Higher-Education Policy," Working Papers 095, "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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