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On the role of borrowing constraints in public and private universities' choices

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  • Laura Romero

    (Universidad Carlos III de Madrid and Universidad de Malaga)

Abstract

We investigate the reasons why universities use different combinations of fees and exams to guide admission decisions, focusing on the role of borrowing constraints on such decisions. On the one hand, we show that public universities choose exams and zero fees under borrowing constraints because exams are efficient allocation devices, and the objective of public institutions is the maximization of surplus. On the other hand, private universities prefer the use of fees to guide admission policies since tuition fees are not only an allocation device but also a source of revenues. Interestingly, we find that while borrowing constraints do not affect quality and admission standards in the public university, they reduce both quality and fees in the private.

Suggested Citation

  • Laura Romero, 2005. "On the role of borrowing constraints in public and private universities' choices," Economics Bulletin, AccessEcon, vol. 9(6), pages 1-8.
    • Handle: RePEc:ebl:ecbull:eb-05i20002
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    References listed on IDEAS

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    1. Eric A. Hanushek & Charles Ka Yui Leung & Kuzey Yilmaz, 2014. "Borrowing Constraints, College Aid, and Intergenerational Mobility," Journal of Human Capital, University of Chicago Press, vol. 8(1), pages 1-41.
    2. Fernandez, R., 1998. "Education and Borrowing Constraints: Tests vs Prices," Working Papers 98-17, C.V. Starr Center for Applied Economics, New York University.
    3. Gordon C. Winston, 1999. "Subsidies, Hierarchy and Peers: The Awkward Economics of Higher Education," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 13-36, Winter.
    4. Romero, Laura & Rey, Elena del, 2004. "Competition between public and private universities: quality, prices and exams," UC3M Working papers. Economics we046423, Universidad Carlos III de Madrid. Departamento de Economía.
    5. Rothschild, Michael & White, Lawrence J, 1995. "The Analytics of the Pricing of Higher Education and Other Services in Which the Customers Are Inputs," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 573-586, June.
    6. Dennis Epple & Richard Romano & Holger Sieg, 2006. "Admission, Tuition, and Financial Aid Policies in the Market for Higher Education," Econometrica, Econometric Society, vol. 74(4), pages 885-928, July.
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    Cited by:

    1. Bralind Kiri, 2016. "An Analysis of Mixed Duopolistic Competition in Higher Education Markets," Investigaciones de Economía de la Educación volume 11, in: José Manuel Cordero Ferrera & Rosa Simancas Rodríguez (ed.), Investigaciones de Economía de la Educación 11, edition 1, volume 11, chapter 17, pages 337-348, Asociación de Economía de la Educación.

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    More about this item

    Keywords

    borrowing constraints.;

    JEL classification:

    • I2 - Health, Education, and Welfare - - Education

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