University Behavior under Borrowing Constraints: The Effect of Students' Abilities Distribution
Keywords:triangular distribution of abilities, borrowing constraints, education quality, tuition fees
The interaction between a university and potential students is examined under the assumptions of financial constraints and of students' abilities following the pattern of a triangular distribution. Subsequently, a comparative statics analysis in terms of welfare and vectors composed of three components – namely quality, tuition fee and ability threshold – is provided. Results suggest that the mode of the distribution is an intrinsic part of equilibria, and that a human capital maximizing university makes additional efforts in terms of pricing and non-pricing strategies in order to alleviate the inconveniences arising due to financial constraints and non-uniformity in the distribution of students' abilities.JEL Codes - D42; H42; I21; I22
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