Understanding the Runaway Tuition Phenomenon: Credence Goods in an Age of Skepticism
42 Pages Posted: 16 Mar 2017 Last revised: 23 Mar 2017
Date Written: March 14, 2017
Seeking to explain why college tuitions are so rapidly increasing, and finding nothing compelling in the usually-offered stories, the author stumbles upon the answer in plain sight. Because of the kind of product higher education is (a credence good) sellers must go to heroic lengths to keep up the semblance that the product is worth all that is charged for it. Money and resources of other kinds must be directed to this end to the limit of their availability, which can never be satiated no matter how much is spent. The economist Howard Bowen seems to have had the basic insight in 1980. The present paper, however, argues that the driving force behind the phenomenon isn’t competition but rather a rational fear, that even a monopolist might have, that the public will stop believing in the worthiness of the product.
Keywords: college tuition, economics, higher education, student debt
JEL Classification: I22, I23, K00
Suggested Citation: Suggested Citation