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To gain or not to lose? Tuition fees for loss averse students

Listed author(s):
  • Guilhem Lecouteux

    ()

    (Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique)

  • Léonard Moulin

    ()

    (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)

We model the educational choice of students whose objectives in terms of salary are conditioned by their social origins. We assume that students from a poor background have a lower reference point than students with wealthier origins. We then study the efficiency of a policy of tuition fees as a mechanism to select students on the basis of their academic abilities. We show that, even in the absence of borrowing constraints, the optimal policy consists in lowering tuition fees for poorer students: since prospective students from a disadvantaged background perceives the possibility of joining the university as a gain, they have a tendency to act too cautiously compared to students with higher aspirations, who are ready to take risky choices in order to avoid what they perceive as a failure, i.e. not joining the university.

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Paper provided by HAL in its series Post-Print with number hal-01345548.

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Date of creation: 01 Jan 2015
Publication status: Published in Economics Bulletin, Economics Bulletin, 2015, 35 (2), pp.1005-1019
Handle: RePEc:hal:journl:hal-01345548
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01345548
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  1. Epple, Dennis & Figlio, David & Romano, Richard, 2004. "Competition between private and public schools: testing stratification and pricing predictions," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1215-1245, July.
  2. Betts, Julian R, 1998. "The Impact of Educational Standards on the Level and Distribution of Earnings," American Economic Review, American Economic Association, vol. 88(1), pages 266-275, March.
  3. Robert J. Gary-Bobo & Alain Trannoy, 2008. "Efficient Tuition Fees and Examinations," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1211-1243, 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. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  6. repec:hal:cepnwp:hal-00749625 is not listed on IDEAS
  7. David Flacher & Hugo Harari-Kermadec, 2013. "Tuition fees, self-esteem and social heterogeneity," Education Economics, Taylor & Francis Journals, vol. 21(2), pages 191-210, March.
  8. Raquel Fernandez, 1998. "Education and Borrowing Constraints: Tests vs. Prices," NBER Working Papers 6588, National Bureau of Economic Research, Inc.
  9. Léonard Moulin, 2014. "Une hausse des frais d'inscription en France est-elle inéluctable ou même simplement souhaitable ?," Post-Print hal-01345565, HAL.
  10. Lionel Page, 2005. "Des inégalités sociales aux inégalités scolaires. Choix éducatifs et Prospect Theory," Revue économique, Presses de Sciences-Po, vol. 56(3), pages 615-623.
  11. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
  12. David Flacher & Hugo Harari-Kermadec & Léonard Moulin, 2012. "Faut-il (vraiment) augmenter les frais d'inscription à l'université ?," Revue française d'économie, Presses de Sciences-Po, vol. 0(3), pages 145-183.
  13. Hsieh, Chang-Tai & Urquiola, Miguel, 2006. "The effects of generalized school choice on achievement and stratification: Evidence from Chile's voucher program," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1477-1503, September.
  14. Raquel Fernández & Jordi Gali, 1999. "To Each According to …? Markets, Tournaments, and the Matching Problem with Borrowing Constraints," Review of Economic Studies, Oxford University Press, vol. 66(4), pages 799-824.
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