TY - JOUR
T1 - Universities as stakeholders in their students' careers
T2 - On the benefits of graduate taxes to finance higher education
AU - McKenzie, Tom
AU - Sliwka, Dirk
PY - 2011/12
Y1 - 2011/12
N2 - We compare up-front tuition fees with graduate taxes for funding higher education. Graduate taxes transfer the volatility in future income from risk-averse students to the risk-neutral state. However, a double moral-hazard problem arises when graduates' work effort and universities' teaching quality are endogenized. Graduate taxes reduce work incentives, but induce universities to improve teaching quality. Yet if revenues are distributed evenly among universities, there is free riding. This is solved by allocating each university the tax revenue from its own alumni.We also demonstrate how a budget-balancing graduate tax would encourage higher university participation than the equivalent tuition fee.
AB - We compare up-front tuition fees with graduate taxes for funding higher education. Graduate taxes transfer the volatility in future income from risk-averse students to the risk-neutral state. However, a double moral-hazard problem arises when graduates' work effort and universities' teaching quality are endogenized. Graduate taxes reduce work incentives, but induce universities to improve teaching quality. Yet if revenues are distributed evenly among universities, there is free riding. This is solved by allocating each university the tax revenue from its own alumni.We also demonstrate how a budget-balancing graduate tax would encourage higher university participation than the equivalent tuition fee.
UR - http://www.scopus.com/inward/record.url?scp=84856565582&partnerID=8YFLogxK
M3 - Article
AN - SCOPUS:84856565582
SN - 0932-4569
VL - 167
SP - 726
EP - 742
JO - Journal of Institutional and Theoretical Economics
JF - Journal of Institutional and Theoretical Economics
IS - 4
ER -