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Education and Borrowing Constraints: Tests Vs. Prices

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  • Fernández, Raquel

Abstract

This paper examines the properties of exams and markets as alternative allocation devices under borrowing constraints. Exams dominate markets in terms of matching efficiency. Whether aggregate consumption is greater under exams than under markets depends on the power of the exam technology; for a sufficiently powerful test, exams dominate markets in terms of aggregate consumption as well. The positive effects of income taxation are analysed and the optimal allocation scheme when wealth is observable is derived. The latter consists of a fellowship scheme, in which markets set school prices but the government gives out fellowships, based on need and the ability to obtain a given exam score.

Suggested Citation

  • Fernández, Raquel, 1998. "Education and Borrowing Constraints: Tests Vs. Prices," CEPR Discussion Papers 1913, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1913
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    Cited by:

    1. Guilhem Lecouteux & Léonard Moulin, 2013. "From welfare to preferences, do decision flaws matter? The case of tuition fees," Working Papers hal-00807687, HAL.
    2. Laura Romero, 2005. "On the role of borrowing constraints in public and private universities' choices," Economics Bulletin, AccessEcon, vol. 9(6), pages 1-8.
    3. Elena Del Rey, 2009. "Can State University Fees Increase Welfare? A Mixed Oligopoly Approach," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(4), pages 670-683, December.
    4. del Rey, Elena & Romero, Laura, 2004. "Prices versus Exams as Strategic Instruments for Competing Universities," Working Papers of the Department of Economics, University of Girona 12, Department of Economics, University of Girona.
    5. Jimmy Chan & Erik Eyster, 2002. "Admission Impossible? Self Interest and Affirmative Action," Economics Working Paper Archive 479, The Johns Hopkins University,Department of Economics.
    6. Romero, Laura & Rey, Elena del, 2004. "Competition between public and private universities: quality, prices and exams," UC3M Working papers. Economics we046423, Universidad Carlos III de Madrid. Departamento de Economía.
    7. Andrea M. Mühlenweg, 2008. "Educational Effects of Alternative Secondary School Tracking Regimes in Germany," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 128(3), pages 351-379.
    8. Guilhem Lecouteux & Léonard Moulin, 2015. "To gain or not to lose? Tuition fees for loss averse students," Economics Bulletin, AccessEcon, vol. 35(2), pages 1005-1019.
    9. Jonathan Pincus, 1998. "Is the Treasury subsidising Australian Undergraduates? or, Investing in Higher Education," School of Economics and Public Policy Working Papers 1998-15, University of Adelaide, School of Economics and Public Policy.
    10. Murat F. Iyigun & Andrew T. Levin, 2003. "What Determines Public Support for Affirmative Action?," Southern Economic Journal, John Wiley & Sons, vol. 69(3), pages 612-627, January.
    11. Murat F. Iyigun & Andrew T. Levin, 1998. "Macroeconomic implications of competitive college admissions," International Finance Discussion Papers 613, Board of Governors of the Federal Reserve System (U.S.).

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    Keywords

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    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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