Abstract: We develop a quantitative framework of competition between public and for-profit institutions in the U.S. four-year college market. The model matches tuition and instructional spending levels at for-profit colleges, and the sorting of traditional and nontraditional students across universities.  In counterfactual policy experiments, we find that raising the Pell Grant cap leads to a drop in tuition and instructional spending in the for-profit sector, which attracts relatively more low-income students. For-profit colleges prefer to comply with “gainful employment” legislation that links access to federal funding for universities to their graduates’ debt-to-earnings ratios. However, in doing so, they lower instructional quality.

Authors: Ciprian Domnisoru, Ioana Schiopu

The public research seminars of the Department of Economics and Finance (DEF) at Tallinn University of Technology  usually take place on the second and fourth Wednesdays of the month in both onsite and online format, unless announced otherwise. The presentation will last approximately 45 minutes followed by 15 minutes of discussion. The seminars are held in English. Copies of the paper are usually made available at the seminar. The DEF seminar series is organised in collaboration with the project ”Individual Behaviour and Economic  Performance: Methodological  Challenges and Institutional Context” (IBEP), which has received funding from the European Union’s Horizon 2020 Research and Innovation programme under Grant Agreement No 952574. Questions about the seminar can be sent to the IBEP seminar coordinator Rachatar Nilavongse, rachatar.nilavongse@taltech.ee.