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Local university supply and distance: a welfare analysis with centralized and decentralized tuition fees

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  • Elias CARRONI
  • Berardino CESI
  • Dimitri PAOLINI

Abstract

We consider a two-city model in which two university systems may occur: a centralized system in which a social planner sets the tuition fee and a decentralized system in which universities are free to set their own fees. Within these two systems we also analyze two further scenarios, one with only one university and another with one university in each city. Individuals with heterogeneous innate ability decide whether to go to university according to the average ability (peer group effect henceforth), a tuition fee and mobility costs, if any. In the centralized system, the welfare is maximized by opening two free-of-fees universities, one in each city. This maximizes university participation and eliminates the impediment of mobility costs. In the decentralized system, whether a single-university or a two-university system is more welfare enhancing depends on the mobility costs. When mobility costs are sufficiently low, then having only one university is welfare maximizing. When, instead, mobility costs are high, two universities result to be welfare enhancing.
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Suggested Citation

  • Elias CARRONI & Berardino CESI & Dimitri PAOLINI, 2016. "Local university supply and distance: a welfare analysis with centralized and decentralized tuition fees," LIDAM Reprints CORE 2803, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2803
    Note: In : Italian Economic Journal, 2(2), 239-252, 2016
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    More about this item

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise

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