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Public Finance of Private Goods: The Case of College Education

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  • Garratt, Rod
  • Marshall, John M

Abstract

This paper describes a contract theory of public finance of college education that explains why everyone pays for the college education of a lucky minority. The contract provides gambles that families desire. Optimizing the contract determines the taxes paid by all members of society, fees paid by those whose children go to college, the fraction of children who are admitted to college, and the quality of college education. Changes in wealth lead to changes in taxes and admissions but fees and quality are invariant. Using a cutoff level of precollege achievement to determine admission to college is justified by the theory. Copyright 1994 by University of Chicago Press.

Suggested Citation

  • Garratt, Rod & Marshall, John M, 1994. "Public Finance of Private Goods: The Case of College Education," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 566-582, June.
    • Handle: RePEc:ucp:jpolec:v:102:y:1994:i:3:p:566-82
    DOI: 10.1086/261946
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    References listed on IDEAS

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    1. Ng Yew Kwang, 1965. "Why do People Buy Lottery Tickets? Choices Involving Risk and the Indivisibility of Expenditure," Journal of Political Economy, University of Chicago Press, vol. 73(5), pages 530-530.
    2. Stiglitz, Joseph E., 1982. "Utilitarianism and horizontal equity : The case for random taxation," Journal of Public Economics, Elsevier, vol. 18(1), pages 1-33, June.
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    4. Marshall, John M, 1984. "Gambles and the Shadow Price of Death," American Economic Review, American Economic Association, vol. 74(1), pages 73-86, March.
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    Cited by:

    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. Hanming Fang & Peter Norman, 2014. "Toward an efficiency rationale for the public provision of private goods," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(2), pages 375-408, June.
    3. Rod Garratt, 2005. "A tale of two cities and a Giffen good," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(1), pages 49-56, February.
    4. Thomas Gall, 2008. "Lotteries, inequality, and market imperfection: Galor and Zeira go gambling," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 34(2), pages 359-382, February.
    5. Kuzey Yilmaz, 2014. "On the Importance of Fertility Behavior in School Finance Policy Design," Koç University-TUSIAD Economic Research Forum Working Papers 1403, Koc University-TUSIAD Economic Research Forum.
    6. Hanushek, Eric A. & Leung, Charles Ka Yui & Yilmaz, Kuzey, 2003. "Redistribution through education and other transfer mechanisms," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1719-1750, November.
    7. Yilmaz, Kuzey, 2018. "Quantity–quality trade-off of children and school finance," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 188-203.
    8. Dan Usher, 2002. "Public Provision of Indivisible Private Goods in Short Supply," Public Finance Review, , vol. 30(5), pages 385-415, September.
    9. Carmen Bevia & Inigo Iturbe–Ormaetxe, 2002. "Redistribution and Subsidies for Higher Education," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(2), pages 321-340, June.
    10. Limor Hatsor & Itzhak Zilcha, 2021. "Subsidizing heterogeneous higher education systems," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(2), pages 318-344, April.
    11. Jonathan Pincus, 2000. "Do We Know Federal Treasury Overspends on Undergraduates?," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 7(3), pages 277-288.
    12. David Neumark & Harry Holzer, 2000. "Assessing Affirmative Action," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 483-568, September.
    13. Ho, Lok Sang, 1997. "Institutional foundations for a just society," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 26(6), pages 627-643.
    14. Viaene, Jean-Marie & Zilcha, Itzhak, 2013. "Public funding of higher education," Journal of Public Economics, Elsevier, vol. 108(C), pages 78-89.
    15. Andrade, Eduardo C., 2004. "Quotas in Brazilian Public Universities: Good or Bad Idea?," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 58(4), October.
    16. Yeşilırmak, Muharrem, 2019. "Bonus pay for teachers, spatial sorting, and student achievement," European Journal of Political Economy, Elsevier, vol. 59(C), pages 129-158.
    17. Michael A. Sadler, 2000. "Escaping Poverty: Risk-Taking and Endogenous Inequality in a Model of Equilibrium Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 704-725, October.
    18. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-1064, October.

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