Too Much Competition in Higher Education? Some Conceptual Remarks on the Excessive‐Signaling Hypothesis

Within the economics of higher education, there is a small but influential literature that describes and analyzes the outcomes of competitive processes on markets for higher educational services. Colleges and universities in the United States currently invest a vast amount of resources in order to attract well-qualified students. Costly activities like advertising, infrastructure investments, the recruitment of academic stars, or the granting of merit-based tuition discounts can be interpreted as different forms of "market signaling" in the sense of Spence. According to some social science authors, these signaling activities have reached a dimension that has to be classified as excessive or socially wasteful from a welfare-economic viewpoint. The present article makes some conceptual remarks on this excessive-signaling hypothesis, and intends to contribute to the debate about the (potentially) harmful and beneficial effects of competition in higher education.     

New constitutional “debt brakes” for Euroland? A question of institutional complementarity

Despite the EU Stability & Growth Pact and existing constitutional limits on public deficit/debt at the (sub)national level in many EU member countries, in the wake of the 2010 Greek bailout, many politicians and policy advisors have proposed new constitutional “debt brakes” to prevent future fiscal crises and bailouts. This paper puts a question mark behind this popular policy recommendation. Public choice scholars and other critical observers have repeatedly emphasised that constitutional deficit/debt limits are not per se credible commitments to run a sound fiscal policy in the future. To demonstrate this, design defects of such fiscal constraints are usually pointed out (no politically independent control, no sanctions, etc.). Going beyond this standard approach of credibility assessment, this paper argues for taking the issue of institutional complementarity seriously. To assess its credibility, one has to not only examine the design of a deficit/debt limit but also the institutional environment (tax/expenditure policy, capital market, etc.) in which such a constitutional commitment is embedded.     

Self-serving legislators? An analysis of the salary-setting institutions of 27 EU parliaments

It is often criticized in public debates that politicians in many jurisdictions have the power to set their own salaries. This paper scrutinizes this practice from a constitutional political economy perspective. A novel dataset is presented which provides an empirical overview of the methods used to set the pay for members of parliament (MPs) in the national parliaments of 27 member states of the European Union. There is considerable cross-country variation in this respect. While in the majority of national legislatures MPs to some degree decide on their own salaries (i.e., ‘self-service’ model), in some systems MP pay is set by bodies independent from MPs. A multiple regression analysis provides empirical support for the self-serving-legislators prediction derived from Public Choice theory: controlling for population size and living costs, salaries are systematically higher in legislatures in which MPs have some say in their own salaries. However, this result has to be interpreted with caution as (1) independent wage-setting bodies exist only in five parliaments, and (2) this study could only include MPs’ basic salaries.     

Considering Market-Based Instruments for Consumer Protection in Higher Education

Based on the economics of consumer protection and contributions from the economics of education, this article presents an analytical framework to deal with the problem of consumer protection in the higher education sector. It is demonstrated that there are not only governmental mechanisms (information provision, quality regulation) but also market-based mechanisms (seller signalling, private certification, private information intermediaries, student screening) to mitigate the informational asymmetry between buyers and sellers of educational services. This informational asymmetry, called students’ ex ante quality uncertainty, provides the central economic rationale for thinking about student protection, quality assurance and consumer information in the higher education marketplace. The basic argument of this paper is that governmental quality assurance is unnecessary in higher education if the market participants themselves, with the help of private third parties (i.e., certifiers and information intermediaries), are able to cope with market failure due to asymmetric information.     

The Economic Approach to European State Aid Control: A Politico-Economic Analysis

Since the mid-2000s, the European Commission has employed a so-called ‘more economic approach’ to European state aid control. Under this modified regime, the Commission checks not only whether a state aid has competition-distorting effects, but in addition, whether it enhances social welfare. This reform implies an extension of the Commission’s competences vis-à-vis the Member States as the Commission gets the power to prohibit national state aid regarded as socially wasteful. The Commission explains its reform with the necessity of giving state aid control a sound economic basis. This article, however, demonstrates that the more economic approach – somewhat paradoxically – is not based on a consistent economic view of public policy that would justify the aforementioned shift of competences to the supranational EU level. The economic-theoretical inconsistencies identified in this article may be used by policymakers to rethink some elements of current EU state aid policy.