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Subsidizing Enjoyable Education

Author

Listed:
  • Robert Dur
  • Amihai Glazer

Abstract

We explain why means-tested college tuition and means-tested government grants to college students can be efficient. The critical idea is that attending college is both an investment good and a consumption good. If education has a consumption benefit and tuition is uniform, the marginal rich student is less smart than some poor people who choose not to attend college, thus reducing the social returns to education and increasing the college’s cost of education. We find that competition among profit-maximizing colleges results in means-tested tuition. In addition, to maximize the social returns to education government should means-test grants. We thus provide a rationale for means-tested tuition and grants which relies neither on capital market imperfections nor on redistributive objectives.

Suggested Citation

  • Robert Dur & Amihai Glazer, 2005. "Subsidizing Enjoyable Education," CESifo Working Paper Series 1560, CESifo.
  • Handle: RePEc:ces:ceswps:_1560
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    References listed on IDEAS

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    Cited by:

    1. Kai Konrad & Stergios Skaperdas, 2012. "The market for protection and the origin of the state," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(2), pages 417-443, June.

    More about this item

    Keywords

    tuition policy; education subsidies; self-selection;

    JEL classification:

    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I20 - Health, Education, and Welfare - - Education - - - General

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