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A general equilibrium analysis of state and private colleges and access to higher education in the U.S

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  • Epple, Dennis
  • Romano, Richard
  • Sarpça, Sinan
  • Sieg, Holger
Abstract
We develop a general equilibrium model of the market for undergraduate higher education that captures the coexistence of public and private colleges, the large degree of quality differentiation among them, and the tuition and admission policies that emerge from their competition for students. A quantitative version of the model matches well estimates of enrollment elasticities, variation in need-based and merit-based institutional aid with, respectively, student income and ability, and aggregate characteristics of U.S. higher education including college attendance in public and private schools, tuition levels, and the provision of federal aid. Predictions about the provision of federal aid and the distribution of students across colleges by ability and income match the empirical counterparts well. We use the model to examine the consequences of federal and state aid policies. A one-third increase in the maximum federal aid increases college attendance by 6% of the initial college population, most of the increase being in state colleges and mainly of poor students. Elite private colleges reduce institutional aid and use the net funding gain to spend more on educational inputs and to substitute some highly able poor students for less able rich students. Reductions in federal or state aid result in substantially reduced attendance mainly by poor students. Reductions of support to state colleges induce private colleges to increase enrollments modestly and improve in quality as demand shifts toward them.

Suggested Citation

  • Epple, Dennis & Romano, Richard & Sarpça, Sinan & Sieg, Holger, 2017. "A general equilibrium analysis of state and private colleges and access to higher education in the U.S," Journal of Public Economics, Elsevier, vol. 155(C), pages 164-178.
  • Handle: RePEc:eee:pubeco:v:155:y:2017:i:c:p:164-178
    DOI: 10.1016/j.jpubeco.2016.09.003
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    2. Liu, Kaiqi & Rusch, Hannes & Seel, Christian & Terstiege, Stefan, 2024. "Competition in Higher Education: Sorting, Ranking and Fees," Research Memorandum 005, Maastricht University, Graduate School of Business and Economics (GSBE).
    3. Loumeau, Gabriel, 2023. "Locating Public Facilities: Theory and Micro Evidence from Paris," Journal of Urban Economics, Elsevier, vol. 135(C).
    4. Steven W. Hemelt & Kevin M. Stange & Fernando Furquim & Andrew Simon & John E. Sawyer, 2021. "Why Is Math Cheaper than English? Understanding Cost Differences in Higher Education," Journal of Labor Economics, University of Chicago Press, vol. 39(2), pages 397-435.
    5. Del Rey Elena & Estevan Fernanda, 2020. "Assessing Higher Education Policy in Brazil: A Mixed Oligopoly Approach," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-16, January.
    6. 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.
    7. Ciprian Domnisoru & Ioana Cosmina Schiopu, 2021. "The Rise of For-Profit Higher Education: A General Equilibrium Analysis," CESifo Working Paper Series 9134, CESifo.
    8. Acton, Riley K., 2022. "Is a name change a game change? The impact of college-to-university conversions," Economics of Education Review, Elsevier, vol. 88(C).
    9. Fridman, A. & Verbetskaia, M., 2020. "Government regulation of the market for higher education," Journal of the New Economic Association, New Economic Association, vol. 45(1), pages 12-43.
    10. Sieg, Holger & Wang, Yu, 2018. "The impact of student debt on education, career, and marriage choices of female lawyers," European Economic Review, Elsevier, vol. 109(C), pages 124-147.
    11. Holger Sieg & Yu Wang, 2017. "The Impact of Student Debt on Education, Career, and Marriage Choices of Female Lawyers," NBER Working Papers 23453, National Bureau of Economic Research, Inc.
    12. Emily E. Cook, 2021. "Competing Campuses: Equilibrium Prices, Admissions, and Undergraduate Programs in US Higher Education," Working Papers 2120, Tulane University, Department of Economics.
    13. Ann M. Gansemer‐Topf & Peter F. Orazem & Darin R. Wohlgemuth, 2021. "Do liberal arts colleges maximize profit?," Southern Economic Journal, John Wiley & Sons, vol. 88(1), pages 274-294, July.
    14. Michael Kaganovich & Sinan Sarpca & Xuejuan Su, 2020. "Competition in Higher Education: A Survey," CESifo Working Paper Series 8220, CESifo.

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    More about this item

    Keywords

    College competition; College access; Financial aid;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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