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For this seminar please read the following paper: Deardon, Lorraine, Emla Fitzsimons and
Gill Wyness (2011) “The Impact of Tuition Fees and Support on University Participation in
the UK.” Centre for the Economics of Education Discussion Paper 126. Please also prepare
answers to the following questions
1. What is the economic rationale for subsidising higher education?
Positive externalities of higher education:
- Communication
- Level of democracy
- New technologies, innovation and knowledge
- Reduction in crime rates (though causality can be contested)
A murkier externality of higher education: The firms have a surplus come from their
employers in an imperfect competition market (price > marginal cost). This affects the
consumers.
Signalling vs human capital approach:
Human capital approach: education generates additional productivity. Education
increases skills whose are demanded in the job market (Becker,1964)
Signalling approach: education itself is useless (Spence,1973). Signalling together
with subsidised education, can lead to over-educating (Chevalier and Lindley 2007,
argue that there has been over-education in the UK in recent years).
Over-education: more supply than demand in the market.
Risks of investing in education:
A degree of risk aversion will lead to under-investment if all of the up-front costs are
horned by students. Careful design of the fee structure is required here if this is to be
overcome. E.g.: the structure in the UK following the Browne Review means that
students won’t have to pay back the loan until they earn £21K (prev £15K)
The distribution:
Investing in higher education can be regressive. It represents a transfer to the middle
class. Try to emphasise the difference between efficiency and equity -which cannot be
satisfactory for just education policy alone.
Ie: the government uses taxes for government expenditure: goes into education: more
transfer to MC income households, higher rates of loans to LC students, but little
structure in place to participate in uni, MC pooled the most money.
To increase university participation. However, different income groups react differently.
“Figure 5 clearly illustrates that the gap in university participation between those from low-
and high-income households (and particularly between low- and medium-income
households) has been narrowing since the mid-1990s. The figure also emphasises that
those from different parental income backgrounds have differing trends in participation over
time, meaning that it will be important to control for this in our modelling.” pg19*
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