A model of school behavior: tuition fees and grading standards

This paper uses a hybrid human capital / signaling model to study grading standards in schools when tuition fees are allowed. The paper analyzes the grading standard set by a profit maximizing school and compares it with the efficient one. The paper also studies grading standards when tuition fees have limits. When fees are regulated a profit maximizing school will set lower grading standards than when they are not regulated. Credit constraints of families also induce schools to lower their standards. Given that in the model presented competition is not feasible, these results show the importance of regulation of grading standards.

The design of optimal education policies when individuals differ in inherited wealth and ability

In this paper I consider the role of optimal education policies in redistribution when individuals differ in two aspects: ability and inherited wealth. I discuss the extent to which the rules that emerge in unidimensional settings apply also in the bidimensional setting considered in this paper. The main conclusion is that, subject to some qualifications, the same type of rules that determine optimal education policies when only ability heterogeneity is considered apply to the case where both parameters of heterogeneity are considered. This rules imply a widening of the education gap between high- and low-ability individuals in second-best with respect to the first-best gap. The qualifications regard the implementation of the optimal allocation of resources to education and not on the way the optimal allocation in first- and in second-best differ.Optimal taxation, education, public provision, multidimensional screening

Is it always good to let universities select their students?

ABSTRACT:We undertake a first step to investigating a reform that has beenapplied in numerous universities across Europe: the right to select students. We ask to what extent this right will increase the effciency of the university. While it seems evident that giving universities the right to select students that match best with the human capital of professors should increase efficiency measures in the productivities of students in the labor market, we point to a potentially negative effect. We argue that allowing universities to select the students they prefer can reduce the incentives of the universities to improve the human capital of their professors.

Mixed oligopoly in education

This paper studies oligopolistic competition in education markets when schools can be private and public and when the quality of education depends on "peer group"effects. In the first stage of our game schools set their quality and in the second stage they fix their tuition fees. We examine how the (subgame perfect Nash) equilibrium allocation (qualities, tuition fees and welfare) is affected by the presence of public schools and by their relative position in the quality range. When there are no peer group effects, efficiency is achieved when (at least) all but one school are public. In particular in the two school case, the impact of a public school is spectacular as we go from a setting of extreme differentiation to an efficient allocation. However, in the three school case, a single public school will lower welfare compared to the private equilibrium. We then introduce a peer group effect which, for any given school is determined by its student with the highest ability. These PGE do have a significant impact on the results. The mixed equilibrium is now never efficient. However, welfare continues to be improved if all but one school are public. Overall, the presence of PGE reduces the effectiveness of public schools as regulatory tool in an otherwise private education sector

Forced saving, redistribution and nonlinear social security schemes

This paper studies the design of a nonlinear social security scheme in a society where individuals differ in two respects: productivity and degree of myopia. Myopic individuals may not save "enough" for their retirement because their "myopic self" emerges when labor supply and savings decisions are made. The social welfare function is paternalistic: the rate of time preference of the far-sighted (which corresponds to the "true" preferences of the myopics) is used for both types. We show that the paternalistic solution does not necessarily imply forced savings for the myopics. This is because paternalistic considerations are mitigated or even outweighed by incentive effects. Our numerical results suggest that as the number of myopic individuals increases, there is less redistribution and more forced saving. Furthermore, as the number of myopic increases, the desirability of social security (measured by the difference between social welfare with and without social security) increases.social security, myopia, dual-self model

Habit formation and labor supply

This paper shows that the combination of habit formation – present consumption creating additional consumption needs in the future – and myopia may explain why some retirees are forced to "unretire", i.e., unexpectedly return to work. It also shows that when myopia about habit formation leads to unretirement there is a case for government's intervention. In a first-best setting the optimal solution can be decentralized by a simple "Pigouvian" (paternalistic) consumption tax (along with suitable lump-sum taxes). In a second-best setting, when personalized lump-sum transfers are not available, consumption taxes may have conflicting paternalistic and redistributive effects. We study the design of consumption taxes in such a setting when myopic individuals differ in productivity.habit formation, myopia, unretiring

Taxing sin goods and subsidizing health care

We consider a two-period model. In the first period, individuals consume two goods: one is sinful and the other is not. The sin good brings pleasure but has a detrimental effect on second period health and individuals tend to underestimate this effect. In the second period, individuals can devote part of their saving to improve their health status and thus compensate for the damage caused by their sinful consumption. We consider two alternative specifications concerning this second period health care decision: either individuals acknowledge that they have made a mistake in the first period out of myopia or ignorance, or they persist in ignoring the detrimental effect of their sinful consumption. We study the optimal linear taxes on sin good consumption, saving and health care expenditures for a paternalistic social planner. We compare those taxes in the two specifications. We show under which circumstances the first best outcome can be decentralized and we study the second best taxes when saving is unobservable.paternalism, behavioral, economics, dual self v single self.