Modelling the U.S. Market for Higher Education and Evaluating Public Funding Policies: Theory and Estimation

Carnegie Mellon University, Pittsburgh PA

Investigators

Abstract

Current issues related to the funding model for higher education bring to the forefront striking features of this market in the U.S.: the coexistence of competing public and private sectors; a high degree of differentiation in college characteristics within and across sectors; and latitude for charging differential tuition to students based on place of residence, household income, and academic qualifications. Surprising little research on the interaction between colleges, public and private, is available to inform the policy debate. This research provides a model that characterizes the interaction of providers of higher education and can be used to evaluate alternative public funding policies. This research will advance the research frontier in, at least, three important dimensions. First, the PIs will provide a new framework that incorporates important features of competition between private and public universities. The framework will capture differences in objectives between public and private institutions, differences in resources, and differences in constraints on tuition and admission policies. Second, the PIs will undertake empirical testing of their model. They will assemble a new data set on public and private universities as well as on parental and student choices. They propose to develop new estimators that can deal with the complex pricing and sorting patterns generated by their model. Finally, they propose to explore the policy implications of their work. They will examine changes in state and federal financial aid policies, and their impact on student attainment and achievement, as well as access to higher education by disadvantaged groups of society. The research develops, estimates, and applies a new framework for understanding the market for higher education and for studying education policy issues. This framework significantly advances the state-of-the art in research providing a detailed analysis of the differences in objectives and constraints faced by private and public universities. The proposed research will provide the first estimated model of public-private competition in higher education and is thus on the frontier of integrating theory, computation, and estimation. The general-equilibrium approach is particularly important for study of changes in state and federal policies and the associated changes in admission and tuition policies. The research explores important current public policy issues. Research findings will be disseminated via conferences, seminars, and research papers to promote broad access to the results. Ph.D. students will participate in the research and develop related research, thus contributing both to their training and to the body of knowledge on the subject matter of this proposal.