The Out-of-State Tuition Distortion

50 Pages Posted: 3 Jan 2017

See all articles by Brian G. Knight

Brian G. Knight

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Nathan Schiff

Shanghai University of Finance and Economics - School of Economics

Date Written: December 2016

Abstract

Public universities in the United States typically charge much higher tuition to non-residents. Perhaps due, at least in part, to these differences in tuition, roughly 75 percent of students nationwide attend in-state institutions. While distinguishing between residents and non-residents is consistent with welfare maximization by state governments, it may lead to economic inefficiencies from a national perspective, with potential welfare gains associated with reducing the gap between in-state and out-of-state tuition. We first formalize this idea in a simple model. While a social planner maximizing national welfare does not distinguish between residents and non-residents, state governments set higher tuition for non-residents. The welfare gains from reducing this tuition gap can be characterized by a sufficient statistic relating out-of-state enrollment to the tuition gap. We then estimate this sufficient statistic via a border discontinuity design using data on the geographic distribution of student residences by institution.

Suggested Citation

Knight, Brian G. and Schiff, Nathan, The Out-of-State Tuition Distortion (December 2016). NBER Working Paper No. w22996, Available at SSRN: https://ssrn.com/abstract=2892420

Brian G. Knight (Contact Author)

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nathan Schiff

Shanghai University of Finance and Economics - School of Economics ( email )

777 Guoding Road
Shanghai, 200433
China

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