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College Pricing and Income Inequality

Author

Listed:
  • Jonathan Heathcote

    (Federal Reserve Bank of Minneapolis)

  • Zhifeng Cai

    (The University of Minnesota)

Abstract

We develop a quantitative model to explore the impact of rising income inequality on college tuition. The framework is one in which households value college quality, and where quality reflects both resources devoted to tuition and the average ability of the student body. Thus colleges are ``club goods'' where students are both inputs to production and consumers of output. Assuming a competitive, profit-maximizing environment, we show that observed changes in household income inequality can account for (i) the observed rise in average tuition, (ii) the rise in tuition dispersion across colleges, (iii) the rise in tuition dispersion within colleges, and (iv) the observed stagnation in aggregate college attendance.

Suggested Citation

  • Jonathan Heathcote & Zhifeng Cai, 2016. "College Pricing and Income Inequality," 2016 Meeting Papers 1623, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1623
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    Cited by:

    1. Lutz Hendricks & Christopher Herrington & Todd Schoellman, 2018. "College Access and Attendance Patterns: A Long-Run View," Opportunity and Inclusive Growth Institute Working Papers 10, Federal Reserve Bank of Minneapolis.
    2. Lutz Hendricks & Christopher Herrington & Todd Schoellman, 2016. "The Changing Roles of Family Income and Academic Ability for US College Attendance," Working Papers 1602, VCU School of Business, Department of Economics, revised Apr 2017.

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