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Escaping Mass Education – Why Harvard Pays

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Abstract

Private universities, as opposed to publicly financed ones, are dominant in some countries and almost non-existent in others. We develop a dynamic model to demonstrate that private providers emerge as soon as they can profitably sell an elite signal to the most highly talented. As private providers engage in cream skimming, the returns to publicly provided education decreases, but the average return to higher education increases because of the signaling benefit created. We use numerical simulations to demonstrate the dynamic implications of our model, and provide some basic empirical evidence in support of the theory presented

Suggested Citation

  • Bergh, Andreas & Fink, Günther, 2005. "Escaping Mass Education – Why Harvard Pays," Working Papers 2005:2, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2005_002
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    File URL: http://project.nek.lu.se/publications/workpap/Papers/WP05_2.pdf
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    1. Kelly Bedard, 2001. "Human Capital versus Signaling Models: University Access and High School Dropouts," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 749-775, August.
    2. Igal Hendel & Joel Shapiro & Paul Willen, 2001. "Educational opportunity and the college premium," Economics Working Papers 560, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.
    4. Stacy Berg Dale & Alan B. Krueger, 2002. "Estimating the Payoff to Attending a More Selective College: An Application of Selection on Observables and Unobservables," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1491-1527.
    5. Andreas Ortmann & Sergey Slobodyan & Samuel S. Nordberg, 2003. "(The Evolution of) Post-Secondary Education: A Computational Model and Experiments," CERGE-EI Working Papers wp208, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    6. Kevin Lang & David Kropp, 1986. "Human Capital Versus Sorting: The Effects of Compulsory Attendance Laws," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 609-624.
    7. Koichi Futagami & Shingo Ishiguro, 2004. "Signal-extracting education in an overlapping generations model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 129-146, July.
    8. Bergh, Andreas & Fink, Günther, 2006. "Higher Education: Does Public Expenditure Increase Enrollment?," Ratio Working Papers 84, The Ratio Institute.
    9. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
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    More about this item

    Keywords

    Higher education; tertiary education; Signaling;

    JEL classification:

    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

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