IDEAS home Printed from https://ideas.repec.org/a/kap/copoec/v34y2023i2d10.1007_s10602-022-09365-x.html
   My bibliography  Save this article

Bureaucratic rent creation: the case of price discrimination in the market for postsecondary education

Author

Listed:
  • Peter K. Hazlett

    (George Mason University)

  • Chandler S. Reilly

    (George Mason University)

Abstract

Under political competition, bureaucrats who wish to maintain their jobs and salaries must continue to stimulate demand for their agency’s services in order to secure funding. This paper suggests that one way a bureau can do so is by creating avenues for private entities to collect rents through entrepreneurial action. The Federal Student Aid office in the U.S. Department of Education and their Free Application for Federal Student Aid (FAFSA) can serve as an example. By getting students to fill out a FAFSA application, colleges obtain the detailed financial information of students and families. Colleges can then use this information to price discriminate. The bureau’s derived benefits from this behavior are two-fold: (1) Private interests groups can lobby political sponsors to continue funding the agency. Using data obtained from lobbying reports filed with the federal government, we find that there is a positive relationship between lobbying expenditures and the implementation of regulations that enhance the value of the rents associated with the FAFSA. (2) The source of the rents can be used as a performance indicator to meet the demands of political sponsors. Drawing from the 5-year strategic plans from the Department of Education and the Federal Student Aid office, we find that these bureaus can benefit from engaging in such behavior.

Suggested Citation

  • Peter K. Hazlett & Chandler S. Reilly, 2023. "Bureaucratic rent creation: the case of price discrimination in the market for postsecondary education," Constitutional Political Economy, Springer, vol. 34(2), pages 226-256, June.
    • Handle: RePEc:kap:copoec:v:34:y:2023:i:2:d:10.1007_s10602-022-09365-x
    DOI: 10.1007/s10602-022-09365-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10602-022-09365-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10602-022-09365-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Todd Kunioka & Lawrence S. Rothenberg, 1993. "The politics of bureaucratic competition: The case of natural resource policy," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(4), pages 700-725.
    2. Lindsay, Cotton M, 1976. "A Theory of Government Enterprise," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1061-1077, October.
    3. Lars Feld & Christoph Schaltegger, 2005. "Voters AS A Hard Budget Constraint: On the Determination of Intergovernmental Grants," Public Choice, Springer, vol. 123(1), pages 147-169, April.
    4. Alexander William Salter & Richard E. Wagner, 2018. "Political entrepreneurship, emergent dynamics, and constitutional politics," Review of Social Economy, Taylor & Francis Journals, vol. 76(3), pages 281-301, July.
    5. Randall G. Holcombe, 2017. "Political incentives for rent creation," Constitutional Political Economy, Springer, vol. 28(1), pages 62-78, March.
    6. KaiA. Konrad & SebastianG. Kessing, 2008. "Time Consistency and Bureaucratic Budget Competition," Economic Journal, Royal Economic Society, vol. 118(525), pages 1-15, January.
    7. Arye L. Hillman & Heinrich W. Ursprung, 2016. "Where are the rent seekers?," Constitutional Political Economy, Springer, vol. 27(2), pages 124-141, June.
    8. Barry Weingast, 1984. "The congressional-bureaucratic system: a principal agent perspective (with applications to the SEC)," Public Choice, Springer, vol. 44(1), pages 147-191, January.
    9. Martin Paldam, 2015. "The public choice of university organization: a stylized story of a constitutional reform," Constitutional Political Economy, Springer, vol. 26(2), pages 137-158, June.
    10. Toke S. Aidt, 2016. "Rent seeking and the economics of corruption," Constitutional Political Economy, Springer, vol. 27(2), pages 142-157, June.
    11. Susan M. Dynarski, 2003. "Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion," American Economic Review, American Economic Association, vol. 93(1), pages 279-288, March.
    12. Natchez, Peter B. & Bupp, Irvin C., 1973. "Policy and Priority in the Budgetary Process," American Political Science Review, Cambridge University Press, vol. 67(3), pages 951-963, September.
    13. Giuseppe Eusepi & Edgar Wilson, 2008. "How to make a dis-entrepreneur of the Schumpeterian entrepreneur: the impact of institutional settings on growth," Public Choice, Springer, vol. 136(1), pages 39-54, July.
    14. Richard Wagner, 2011. "Municipal corporations, economic calculation, and political pricing: exploring a theoretical antinomy," Public Choice, Springer, vol. 149(1), pages 151-165, October.
    15. Peter Boettke & Christopher Coyne & Peter Leeson, 2007. "Saving government failure theory from itself: recasting political economy from an Austrian perspective," Constitutional Political Economy, Springer, vol. 18(2), pages 127-143, June.
    16. Ting, Michael M, 2001. "The "Power of the Purse" and Its Implications for Bureaucratic Policy-Making," Public Choice, Springer, vol. 106(3-4), pages 243-274, March.
    17. Michael Wohlgemuth, 1995. "Economic and political competition in neoclassical and evolutionary perspective," Constitutional Political Economy, Springer, vol. 6(1), pages 71-96, December.
    18. Robert Goodin, 1975. "The logic of bureaucratic back scratching," Public Choice, Springer, vol. 21(1), pages 53-67, March.
    19. Christopher Coyne, 2008. "The Politics of Bureaucracy and the failure of post-war reconstruction," Public Choice, Springer, vol. 135(1), pages 11-22, April.
    20. Margolis, Julius, 1975. "Bureaucrats and Politicians: Comment," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 645-659, December.
    21. Frederick G. Tiffany & Jeff A. Ankrom, 1998. "The Competitive Use of Price Discrimination by Colleges," Eastern Economic Journal, Eastern Economic Association, vol. 24(1), pages 99-110, Winter.
    22. Richard E. Wagner, 2016. "Politics as a Peculiar Business," Books, Edward Elgar Publishing, number 16989.
    23. Richard Wagner & Deema Yazigi, 2014. "Form vs. substance in selection through competition: elections, markets, and political economy," Public Choice, Springer, vol. 159(3), pages 503-514, June.
    24. Silvia Fedeli & Leone Leonida & Michele Santoni, 2018. "Bureaucratic institutional design: the case of the Italian NHS," Public Choice, Springer, vol. 177(3), pages 265-285, December.
    25. Susan Dynarski, 2002. "The Behavioral and Distributional Implications of Aid for College," American Economic Review, American Economic Association, vol. 92(2), pages 279-285, May.
    26. Vining, Aidan R & Boardman, Anthony E, 1992. "Ownership versus Competition: Efficiency in Public Enterprise," Public Choice, Springer, vol. 73(2), pages 205-239, March.
    27. Amy McKay, 2011. "The decision to lobby bureaucrats," Public Choice, Springer, vol. 147(1), pages 123-138, April.
    28. Vera Kistiakowsky, 1989. "Military Funding of University Research," The ANNALS of the American Academy of Political and Social Science, , vol. 502(1), pages 141-154, March.
    29. Randall Holcombe & Edward Price, 1978. "Optimality and the institutional structure of bureaucracy," Public Choice, Springer, vol. 33(1), pages 55-59, March.
    30. Joel Waldfogel, 2015. "First Degree Price Discrimination Goes to School," Journal of Industrial Economics, Wiley Blackwell, vol. 63(4), pages 569-597, December.
    31. Anderson, Gary M. & Shughart, William II & Tollison, Robert D., 1991. "Educational achievement and the cost of bureaucracy," Journal of Economic Behavior & Organization, Elsevier, vol. 15(1), pages 29-45, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alshamy, Yahya & Coyne, Christopher J. & Goodman, Nathan, 2023. "Noxious government markets: Evidence from the international arms trade," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 87-99.
    2. Victor I. Espinosa & José Antonio Peña-Ramos & Fátima Recuero-López, 2021. "The Political Economy of Rent-Seeking: Evidence from Spain’s Support Policies for Renewable Energy," Energies, MDPI, vol. 14(14), pages 1-16, July.
    3. Patrick A. McLaughlin & Adam C. Smith & Russell S. Sobel, 2019. "Bootleggers, Baptists, and the risks of rent seeking," Constitutional Political Economy, Springer, vol. 30(2), pages 211-234, June.
    4. Bozec, Richard, 2004. "L’analyse comparative de la performance entre les entreprises publiques et les entreprises privées : le problème de mesure et son impact sur les résultats," L'Actualité Economique, Société Canadienne de Science Economique, vol. 80(4), pages 619-654, Décembre.
    5. Diego Restuccia & Guillaume Vandenbroucke, 2013. "The Evolution Of Education: A Macroeconomic Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(3), pages 915-936, August.
    6. Bednar, Steven & Gicheva, Dora, 2013. "Tax benefits for graduate education: Incentives for whom?," Economics of Education Review, Elsevier, vol. 36(C), pages 181-197.
    7. Katharine G. Abraham & Melissa A. Clark, 2006. "Financial Aid and Students’ College Decisions: Evidence from the District of Columbia Tuition Assistance Grant Program," Journal of Human Resources, University of Wisconsin Press, vol. 41(3).
    8. Molina, Teresa & Rivadeneyra, Ivan, 2021. "The schooling and labor market effects of eliminating university tuition in Ecuador," Journal of Public Economics, Elsevier, vol. 196(C).
    9. Pietro Garibaldi & Francesco Giavazzi & Andrea Ichino & Enrico Rettore, 2012. "College Cost and Time to Complete a Degree: Evidence from Tuition Discontinuities," The Review of Economics and Statistics, MIT Press, vol. 94(3), pages 699-711, August.
    10. James M. Poterba, 1996. "Government Intervention in the Markets for Education and Health Care: How and Why?," NBER Chapters, in: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, pages 277-308, National Bureau of Economic Research, Inc.
    11. Matthew D. Mitchell, 2019. "Uncontestable favoritism," Public Choice, Springer, vol. 181(1), pages 167-190, October.
    12. Susan Dynarski, 2008. "Building the Stock of College-Educated Labor," Journal of Human Resources, University of Wisconsin Press, vol. 43(3), pages 576-610.
    13. David Deming & Susan Dynarski, 2009. "Into College, Out of Poverty? Policies to Increase the Postsecondary Attainment of the Poor," NBER Working Papers 15387, National Bureau of Economic Research, Inc.
    14. Walter E. Block, 2017. "Radical Privatization: Oceans, Roads,Heavenly Bodies," Romanian Economic Business Review, Romanian-American University, vol. 12(2), pages 41-56, June.
    15. Viktor Steiner & Katharina Wrohlich, 2012. "Financial Student Aid and Enrollment in Higher Education: New Evidence from Germany," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(1), pages 124-147, March.
    16. Goodman, Joshua, 2008. "Who merits financial aid?: Massachusetts' Adams Scholarship," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2121-2131, October.
    17. Ludger Wößmann, 2008. "Efficiency and equity of European education and training policies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(2), pages 199-230, April.
    18. Ehrenberg, R.G.Ronald G., 2004. "Econometric studies of higher education," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 19-37.
    19. Avdic, Daniel & Gartell, Marie, 2015. "Working while studying? Student aid design and socioeconomic achievement disparities in higher education," Labour Economics, Elsevier, vol. 33(C), pages 26-40.
    20. Bryan P. Cutsinger & Alexander Marsella & Yang Zhou, 2022. "Insuring legislative wealth transfers: theory and evidence," Public Choice, Springer, vol. 192(1), pages 127-144, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:copoec:v:34:y:2023:i:2:d:10.1007_s10602-022-09365-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.