Public Finance of Private Goods: The Case of College Education
This paper describes a contract theory of public finance of college education that explains why everyone pays for the college education of a lucky minority. The contract provides gambles that families desire. Optimizing the contract determines the taxes paid by all members of society, fees paid by those whose children go to college, the fraction of children who are admitted to college, and the quality of college education. Changes in wealth lead to changes in taxes and admissions but fees and quality are invariant. Using a cutoff level of precollege achievement to determine admission to college is justified by the theory. Copyright 1994 by University of Chicago Press.
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- Joseph E. Stiglitz, 1981.
"Utilitarianism and Horizontal Equity: The Case for Random Taxation,"
NBER Working Papers
0694, National Bureau of Economic Research, Inc.
- Stiglitz, Joseph E., 1982. "Utilitarianism and horizontal equity : The case for random taxation," Journal of Public Economics, Elsevier, vol. 18(1), pages 1-33, June.
- Marshall, John M, 1984. "Gambles and the Shadow Price of Death," American Economic Review, American Economic Association, vol. 74(1), pages 73-86, March.
- Ng Yew Kwang, 1965. "Why do People Buy Lottery Tickets? Choices Involving Risk and the Indivisibility of Expenditure," Journal of Political Economy, University of Chicago Press, vol. 73, pages 530.
- Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279.
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