Educational Inequality and Reservation Policy in Developing Markets

55 Pages Posted: 12 Feb 2021 Last revised: 31 May 2023

See all articles by Weining Bao

Weining Bao

University of Connecticut

Jian Ni

Virginia Tech - Pamplin College of Business

Shubhranshu Singh

Johns Hopkins University - Carey Business School

Date Written: May 30, 2023

Abstract

Educational inequality undermines the pivotal role of education in increasing the ability of the poor to move up the income ladder. This paper investigates educational inequality that arises from low-income students’ lack of monetary resources that higher-income students invest in education. We show low-income students’ inability to make monetary investments in education reduces their incentive to study and contributes to educational inequality. In the context of developing markets, we study implications of a reservation policy that aims to reduce inequality by reserving some college seats for students of the disadvantaged group. The policy essentially transfers college seats from the advantaged student group to the disadvantaged student group and as a result increases the welfare of students from the disadvantaged group. In some cases, the seat transfer also improves the welfare of higher-income students. We show such a transfer, if small, can enhance overall student welfare in developing markets. However, a large transfer may reduce overall student welfare. Finally, we show the welfare-maximizing transfer is usually smaller than inequality-minimizing transfer of seats.

Keywords: Education, reservation policy, developing markets, moral hazard, poverty

JEL Classification: C70, D63, I23, I24, I28, M31, M38

Suggested Citation

Bao, Weining and Ni, Jian and Singh, Shubhranshu, Educational Inequality and Reservation Policy in Developing Markets (May 30, 2023). Available at SSRN: https://ssrn.com/abstract=3772113 or http://dx.doi.org/10.2139/ssrn.3772113

Weining Bao

University of Connecticut ( email )

Storrs, CT 06269-1063
United States

Jian Ni

Virginia Tech - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

HOME PAGE: http://https://sites.google.com/site/jiannicmu/

Shubhranshu Singh (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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