Universities as Stakeholders in their Students' Careers: On the Benefits of Graduate Taxes to Finance Higher Education
We examine ways of funding higher education, comparing upfront tuition fees with graduate taxes. The tax dominates, as volatility in future income is transferred from risk-averse students to the risk-neutral state. However, a double moral hazard problem arises when students’ efforts to raise lifetime income and universities’ activities to improve teaching quality are endogenized. We show that graduate taxes reduce work incentives but provide incentives to improve teaching quality. Yet if tax revenues are distributed evenly among universities there is free riding. To solve this problem each university should be allocated the revenue generated by its own alumni. In addition, we demonstrate how a budget-balancing graduate tax would encourage more people to attend university than would the equivalent upfront tuition fee.
|Date of creation:||Nov 2010|
|Date of revision:|
|Publication status:||published in: Journal of Institutional and Theoretical Economics, 2011, 167 (4), 726-742|
|Contact details of provider:|| Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany|
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rothstein, Jesse & Rouse, Cecilia Elena, 2011.
"Constrained after college: Student loans and early-career occupational choices,"
Journal of Public Economics,
Elsevier, vol. 95(1), pages 149-163.
- Rothstein, Jesse & Rouse, Cecilia Elena, 2011. "Constrained after college: Student loans and early-career occupational choices," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 149-163, February.
- Jesse Rothstein & Cecilia Elena Rouse, 2007. "Constrained After College: Student Loans and Early Career Occupational Choices," NBER Working Papers 13117, National Bureau of Economic Research, Inc.
- Jesse Rothstein & Cecilia Elena Rouse, 2007. "Constrained After College: Student Loans and Early Career Occupational Choices," Working Papers 18, Princeton University, Woodrow Wilson School of Public and International Affairs, Education Research Section..
- Bruce Chapman & Mathias Sinning, 2010.
"Student Loan Reforms for German Higher Education: Financing Tuition Fees,"
CEPR Discussion Papers
646, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- Bruce Chapman & Mathias Sinning, 2014. "Student loan reforms for German higher education: financing tuition fees," Education Economics, Taylor & Francis Journals, vol. 22(6), pages 569-588, December.
- Chapman, Bruce & Sinning, Mathias, 2011. "Student Loan Reforms for German Higher Education: Financing Tuition Fees," IZA Discussion Papers 5532, Institute for the Study of Labor (IZA).
- Chapman, Bruce & Sinning, Mathias, 2011. "Student Loan Reforms for German Higher Education: Financing Tuition Fees," Ruhr Economic Papers 244, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
- Nicholas Barr, 1993. "Alternative funding resources for higher education," LSE Research Online Documents on Economics 280, London School of Economics and Political Science, LSE Library.
- Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999.
"The economics of career concerns: part 2 :application to missions and accountability of government agencies,"
ULB Institutional Repository
2013/9641, ULB -- Universite Libre de Bruxelles.
- Mathias Dewatripont & Ian Jewitt & Jean Tirole, 1999. "The Economics of Career Concerns, Part II: Application to Missions and Accountability of Government Agencies," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 199-217.
- Russell Cooper & T.W. Ross, 1984.
"Product Warranties and Double Moral Hazard,"
Cowles Foundation Discussion Papers
716, Cowles Foundation for Research in Economics, Yale University.
- Joel S. Demski & David E.M. Sappington, 1991. "Resolving Double Moral Hazard Problems with Buyout Agreements," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 232-240, Summer.
- Barr, Nicholas, 1993. "Alternative Funding Resources for Higher Education," Economic Journal, Royal Economic Society, vol. 103(418), pages 718-28, May.
- Gary-Bobo, Robert J. & Trannoy, Alain, 2005.
"Efficient Tuition & Fees, Examinations and Subsidies,"
CEPR Discussion Papers
5011, C.E.P.R. Discussion Papers.
- Robert J. Gary-Bobo & Alain Trannoy, 2005. "Efficient Tuition & Fees, Examinations, and Subsidies," IDEP Working Papers 0501, Institut d'economie publique (IDEP), Marseille, France, revised 01 Mar 2005.
- Richard E. Romano, 1994. "Double Moral Hazard and Resale Price Maintenance," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 455-466, Autumn.
- repec:zbw:rwirep:0244 is not listed on IDEAS
- Brendan M. Cunningham & Carlena K. Cochi-Ficano, 2002. "The Determinants of Donative Revenue Flows from Alumni of Higher Education: An Empirical Inquiry," Journal of Human Resources, University of Wisconsin Press, vol. 37(3), pages 540-569.
- Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
- Robert Dur, 2004. "Should Higher Education Subsidies Depend on Parental Income?," Oxford Review of Economic Policy, Oxford University Press, vol. 20(2), pages 284-297, Summer.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp5330. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.