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The perverse equilibrium effects of state and federal student aid in higher education

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  • Kolpin, Van
  • Stater, Mark

Abstract

Reflecting the ongoing public concern about strategic behavior among colleges, we develop a game-theoretic higher education model with peer effects to examine the equilibrium market response to changes in state and federal student aid. In addition to establishing perfect equilibrium existence, we find that state and federal student aid programs are vulnerable to equilibrium effects that conflict with the intended impact of policy instruments. For instance, even when college objectives are devoid of selfish intent, strict increases in state and federal student aid can induce decreased student access to higher education or even increased financial strain from college enrollment.

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  • 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.
    • Handle: RePEc:eee:jeborg:v:217:y:2024:i:c:p:679-691
    DOI: 10.1016/j.jebo.2023.11.022
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    Cited by:

    1. Robert Kelchen & Dubravka Ritter & Douglas Webber, 2024. "Predicting College Closures and Financial Distress," NBER Chapters, in: Financing Institutions of Higher Education, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Higher education; Bennett hypothesis; Perfect equilibrium; Peer effects; Government aid;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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