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Peer Effect and Competition in Higher Education

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  • Eduardo de Carvalho Andrade
  • Rodrigo M. Moita

Abstract

This paper analyzes the role of peer effect in the market for higher education. Peer effect is a key variable to understand why higher education institutions set tuition in a way to maintain permanent excess demand. We use data on undergraduate business courses in Brazil to estimate a discrete choice model of demand. The results show a strong impact of peer effect on students’ choice of school. We calculate the tuition increase that would eliminate the excess demand. The results show that the upper limit of the total investment in peer effect is equal to US$ 770 thousands per month for the freshmen year, or 5.13% of the current revenues.

Suggested Citation

  • Eduardo de Carvalho Andrade & Rodrigo M. Moita, 2009. "Peer Effect and Competition in Higher Education," Business and Economics Working Papers 063, Unidade de Negocios e Economia, Insper.
    • Handle: RePEc:aap:wpaper:063
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