Funding Shocks and Optimal University Admissions and Financial Aid Policies |
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Authors: | Matthew G Nagler |
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Institution: | (1) Department of Economics, Lehman College, City University of New York, 250 Bedford Park Boulevard West, Bronx, NY 10468-1589, USA |
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Abstract: | A positive shock to funding, such as a major donation, causes an optimizing university to raise its admissions standards and
reduce tuition charges net of financial aid across all student categories. However, the shock’s effect on enrollment may not
be uniform. Student categories given little weight in the university’s objective function may be treated as inferior goods;
that is, positive shocks decrease their enrollments, while other student categories’ enrollments are increased. The paper’s
findings shed light on the effect of federal direct-to-student aid on tuition levels, permitting a new perspective on William
Bennett’s controversial hypothesis that aid accommodates tuition hikes.
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Keywords: | Educational finance Financial aid policy Resource allocation Utility maximization models |
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