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A low-subsidy problem in public higher education

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  • Fethke, Gary

Abstract

With an exogenous public subsidy and a break-even restriction on university net revenue, tuition discrimination supports a quasi-efficient departure from marginal-cost pricing. In contrast, when the legislature and university interact in their subsidy and tuition decisions, the public subsidy becomes endogenous. With an endogenous public subsidy, support by legislatures is affected by the same factors that influence tuition; this leads to a situation where higher tuition revenue is accompanied by a lower public subsidy. The welfare of students declines when this "low-subsidy" case develops. The university's ability to address this issue depends on its being able to commit to a tuition policy, and credible commitment appears consistent with existing institutional conditions.

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  • Fethke, Gary, 2011. "A low-subsidy problem in public higher education," Economics of Education Review, Elsevier, vol. 30(4), pages 617-626, August.
    • Handle: RePEc:eee:ecoedu:v:30:y:2011:i:4:p:617-626
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    References listed on IDEAS

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    1. Burer, Samuel & Fethke, Gary, 2016. "Nearly-efficient tuitions and subsidies in American public higher education," Economics of Education Review, Elsevier, vol. 55(C), pages 182-197.
    2. Kolpin, Van & Stater, Mark, 2024. "The perverse equilibrium effects of state and federal student aid in higher education," Journal of Economic Behavior & Organization, Elsevier, vol. 217(C), pages 679-691.
    3. Fethke, Gary, 2021. "Efficient enrollments using high tuition-high aid," Journal of Policy Modeling, Elsevier, vol. 43(3), pages 543-557.

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