Regulation in the Market for Education and Optimal Choice of Curriculum

Abstract

We analyze educational institutions' incentives to set up demanding or lax curricula in duopolistic markets for education with endogenous enrolment of students. Comparing the case of regulated tuition fees with an unregulated market, we identify the following inefficiencies: Under regulated tuition fees universities will set up inefficiently lax curricula in an attempt to please low-quality students, which is more pronounced if there is a high spillover from teaching into research. On the other hand, unregulated institutions set up excessively demanding curricula in order to compete for high-ability students. A larger teaching-research spillover makes it more likely that the former inefficiency dominates the latter.

Keywords: Secondary Education, Higher Education, Product Differentiation, Price Competition, Vouchers

JEL Classification: I28, L13