The Role of Colleges within the Higher Education Sector

30 Pages Posted: 28 Aug 2018

See all articles by Bernhard Eckwert

Bernhard Eckwert

Bielefeld University - Department of Business Administration and Economics

Itzhak Zilcha

Tel Aviv University - Eitan Berglas School of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 03, 2018

Abstract

Over the past decades the college sectors in the higher education systems of many Western countries have expanded their capacities massively. This happened even though colleges have been at a competitive disadvantage with universities which are publicly subsidized, while colleges must self-finance through tuition fees. The question arises how, in equilibrium, a diverse student population is allocated between these institutions and whether the resulting human capital accumulation process is efficient. Our paper explores these questions within an information-based theoretical framework. Individuals are screened for their (unobservable) innate abilities, and the precision of the screening mechanism, which is endogenous, balances demand and supply of educational services. We find that in the short term, when the college capacity is fixed, college subsidies are not desirable in most cases. In the long term, the college sector may expand excessively thereby establishing inefficiently low screening standards in the admission process to higher education.

Keywords: higher education, college expansion, equilibrium screening mechanism, efficiency

JEL Classification: D800, I210, I230, I250

Suggested Citation

Eckwert, Bernhard and Zilcha, Itzhak, The Role of Colleges within the Higher Education Sector (July 03, 2018). CESifo Working Paper Series No. 7135. Available at SSRN: https://ssrn.com/abstract=3235315

Bernhard Eckwert

Bielefeld University - Department of Business Administration and Economics ( email )

D-33501 Bielefeld
Germany
+49 521 106 6926 (Phone)
+49 521 106 6416 (Fax)

Itzhak Zilcha (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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