Peer Effects in Higher Education

In this chapter, we describe the potential significance of student peer effects for the economic structure of and behavior in higher education. Their existence would motivate much of the restricted supply, student queuing, and selectivity and institutional competition via merit aid and honors colleges that we see in American higher education; their (appropriate) non-linearity could justify the resulting stratification of higher education as an efficient way to produce human capital. In addition, we use data from the College and Beyond entering class of 1989, combined with phonebook data identifying roommates, to implement a quasi-experimental empirical strategy aimed at measuring peer effects in academic outcomes. In particular, we use data on individual students' grades, SAT scores, and the SAT scores of their roommates at three schools to estimate the effect of roommates' academic characteristics on an individual's grades. The results suggest that, for two of the three schools used, students in the middle of the SAT distribution do somewhat worse in terms of grades if they share a room with a student who is in the bottom 15 percent of the SAT distribution. Students in the top of the SAT distribution appear often not to be affected by the SAT scores of their roommates. These results are similar to those reported in earlier research using data from Williams (Zimmerman) and Dartmouth (Sacerdote).

The positional arms race in higher education

The market for undergraduate education has many similarities to an arms race. A school's position - relative to other schools - determines its success in attracting students and student quality. Its position, in turn, is largely determined by the size of its student subsidies, the difference between its educational spending and the net tuition it charges its students (or, much the same thing, how much their students have to pay for a dollar's worth of educational spending). High-subsidy schools spend the most per dollar of tuition so that 'bargain' attracts the highest quality students. To change its position, a school must spend more or charge less - and find the resources to support it. The positional arms race suggests why competition from a school further down in the hierarchy forces a response more effectively than competition from above and why it's been typical of higher education that costs rise to reposition, but prices don't fall

?Grow? the College? Why Bigger May Be Far From Better

This brief paper asks if the proposition that 'growth is good' applies with equal force to private business and to private colleges and universities. An increasing appreciation of the fundamental differences in economic structure between business firms and academic institutions suggests that it's easy to make costly mistakes if those differences are ignored and 'expanded sales' may often be one of them. The most fundamental problem rests, simply, on the fact that since the price paid by a college's customers covers only a fraction of the cost of providing their education, rather than yielding additional net revenues, enrollment expansion (other things equal) will generate additional uncompensated costs. Special circumstances can sometimes still justify increased enrollments, but they are circumstances very different from those facing a business firm

Economic stratification and hierarchy among US colleges and universities

Colleges and universities in the US differ markedly in their access to economic resources, hence in what they can do for their students. National (IPEDS) data are used here to describe the resulting hierarchy that?s reflected in schools? spending on their students, the prices those students pay, and the subsidies they get in consequence. Both historical data and projections based on recent institutional saving suggest that economic disparities among institutions and their students are increasing. In a final section, the paper asks what to make of this: what we can say about ?the right degree? of institutional disparity, so whether we have too much, too little, or about the right amount of differentiation

Toward a Theory of Tuition: Prices, Peer Wages, and Competition in Higher Education

College tuition, as the price of higher education services, defies familiar economic analysis in important ways. It is recognized that tuition is a price that covers only a fraction of the cost of producing those educational services (about a third, nationally), creating an in-kind subsidy for students (the balance being made up by large flows of donative resources from gifts, appropriations, and returns on wealth). This paper examines yet another important economic peculiarity of tuition; it takes seriously input and output markets implied by Rothschild-White (1995 JPE) in which a single event - of a student?s matriculation - is simultaneously a transaction in both an input market (where a wage is paid for a student?s peer quality) and an output market (where a price is paid for the college?s educational services). Those two prices are obscured by the fact that the peer wage is paid in the form of a discount on the price of educational services as well as by the fact that the schools? sales (tuition) revenues are significantly augmented by those donated resources. This framing sees a school?s access to donated resources (wealth) critical in determining which market - peer quality inputs or educational services sales - will most influence its behavior. Apparent anomalies in the product market - like queues of unsatisfied customers that persist while schools refuse to expand capacity - disappear when they are seen to be the result of an input market where a queue of job applicants is used to allow the firm to select on worker - peer - quality (the result of an Akerlof- Yellen efficiency wage)

Access to the most selective private colleges by high-ability, low-income students: Are they out there?

With only a small number of their students coming from families with the lowest incomes (10% from the bottom two family income quintiles), the nation's most selective private colleges and universities need to know why. Two ready ideological answers are (1) that low-income high-ability students are being excluded in order to favor the children of society's most advantaged or (2) that very few low-income high-ability students exist - that by college age, low-income students have been so damaged by education, nutrition, neighborhoods, and families that few can qualify in a perfectly fair admissions process. This paper uses the national population of high school test-takers in 2003 to examine the national distribution over family incomes of high-ability students (variously defined). With these data, two questions can be addressed. What would be the target share of low-income students at these schools if their student bodies were to mirror the national high-ability population? And, are they out there - do there exist enough such low-income, high-ability students to meet those targets? It is shown that they are out there - that a somewhat larger share of the test-taking population is made up of high-ability, low-income students than are found in these schools and that their numbers make it feasible for the schools to increase their enrollments to target that national share. Because much depends on the definition of high-ability used, we consider alternative definitions but reach the same conclusion at any reasonable level (like a minimum combined SAT of 1300 or even 1420)

Access: Net Prices, Affordability, and Equity At A Highly Selective College

All of the financial aid decisions at Williams College for the past fourteen years - nearly 14,000 of them - were used to see how much students actually paid for tuition, room, board, and fees to go to that highly selective and expensive school - their net prices. Williams practices need blind admission with full need-based financial aid and gives neither merit nor athletic scholarships - a family?s economic circumstances are the only reason for a price adjustment. So these data can answer the motivating question of the study, ?Can highly able low income students reasonably aspire to go to the best and most expensive colleges in the country?? Does need-blind admission and full need financial aid, in other words, really work to serve merit and equity at the same time? With income and net price data on all aided students and income data for families at the 95th and 99th percentiles of the US income distribution who pay the full sticker price, we can describe the net price pattern across the whole student population as pricing policies have evolved at Williams (and similarly at other highly selective schools). The end point - in the current academic year - sees a remarkable similarity in the shares of income paid for a year at Williams. Aided students across the five income quintiles pay, on average, 11% to 19% of their pretax family incomes - the lowest income quintile paying the smallest share - while those at the 95th and 99th percentiles, paying full price, spend 21% and 9% of their family incomes, respectively, for a year at Williams. One usefully concrete number: the average student in the bottom twenty percent of the income distribution pays $1,683 while the full tuition is$32,470

Where is aggressive price competition taking higher education?

It is increasingly clear that price competition is escalating in the market for higher education. We attempt to understand how price competition would work in higher education and explore the likely long run equilibrium structure of prices in that context. We draw inferences using both microeconomic theory and historical parallels found in the market for graduate education. Our analysis suggests that negative prices are likely to prevail at the wealthiest colleges and universities. Using data from IPEDS we estimate the resulting distribution of prices and school quality. While price competition may increase attendance by low income students at the wealthiest colleges and universities, it is unclear how they will fare at schools with middling wealth and resources. Further, schools with less accumulated wealth will be particularly vulnerable to any ensuing price competition. While our conclusions must be interpreted with caution, they do suggest some cause for alarm

Saving, wealth, performance, and revenues in US colleges and universities

Data on institutional saving in US higher education have not been available until now, yet they are useful in several ways. They describe how various types of schools are doing financially, and whether their present behavior is sustainable. They complete the picture of sources and uses of revenue for institutions of higher learning, which allows us to pin down the degree to which the charitable mission of these schools is responsible for their income. They describe a limit to aggressive price reductions. And they allow for some projections of what the economic structure of higher education will look like in the future. Financial data for U.S. higher education institutions from the U.S. Department of Education's Integrated Postsecondary Education Data System (IPEDS) are used to compute savings rates for 2109 institutions in 1995-6, and for 1581 institutions for a panel of the years 1986-7, 1990-1, and 1995-6. These data are available as Excel or Stata files

Physical Capital and Capital Service Costs in U.S. Colleges and Universities: 1993

Physical capital represents an important input to the production of higher education--the essential services of buildings, equipment, and land--for which we have only highly inadequate measures. This paper has three objectives: to report estimates of the value of the capital stocks used by 3,148 colleges and universities in the US in 1993 (virtually all of them), to give a sense of the distribution of that physical capital and of capital service costs among different kinds of institutions, and to make these estimates available to other students of higher education in the form of FoxPro or Excel files.Education