Admission, Tuition, and Financial Aid Policies in the Market for Higher Education
In this paper, we present a general equilibrium model of the market for higher education. Our model simultaneously predicts student selection into institutions, financial aid, and educational outcomes. We show that the model gives rise to a strict hierarchy of colleges that differ by the educational quality provided to the students. We develop an efficient algorithm to compute equilibria for these types of models. To evaluate the model, we develop an estimation strategy that accounts for the fact that important variables are likely to be measured with error. We estimate the structural parameters using data collected by the National Center for Educational Statistics and aggregate data from Peterson's and NSF. Our empirical findings suggest that our model explains observed admission and price policies reasonably well. The findings also suggest that the market for higher education is quite competitive.
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