Market Power, Tuition Discrimination, and the Bennett Hypothesis

SSRN Electronic Journal, 2003

Are federal Pell grants "appropriated" by universities through increases in tuitionconsistent with what is known as the Bennett hypothesis? Based on a panel of 71 universities from 1983 to 1996, we find little evidence of the Bennett hypothesis among either public or lower-ranked private universities. For top-ranked private universities, though, increases in Pell grants appear to be more than matched by increases in net tuition. The behavior most consistent with this result is price discrimination that is not purely redistributive from wealthier to needier students. "If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase."

Economics of Education Review, 2007

The Pell grant program is the largest federal program for college students, with support to over three million students at more than six thousand institutions. A prominent question in public debate is whether Pell grants tend to be appropriated by universities through increases in tuition -consistent with what is known as the Bennett hypothesis. Based on a panel of 1554 colleges and universities from 1989 to 1996, we find little evidence of the Bennett hypothesis for in-state tuition for public universities. For private universities, though, increases in Pell grants appear to be matched nearly one for one by increases in list (and net) tuition. Results for outof-state tuition for public universities are similar to those for private universities, suggesting that they behave more like private ones in setting out-of-state tuition. Institutional responses in these latter cases appear at odds with federal grants-in-aid policy.

2016

This study links federal Pell grants to college students in the United States to the decades-long decline in state-local funding for public colleges. The effect is at least as significant as other explanations based on taxes, Medicaid, or K-12 funding. Estimates are obtained from multiple identification strategies, including a crossover, repeated-measures (RM) design—a powerful design particularly well suited to the Pell program. The results offer a compelling example of how federal funding can induce an unintended cascade of effects even when it is given to individuals, not as traditional inter-governmental grants.

The RAND Journal of Economics, 2019

Wolpin, and seminar participants at various conferences and workshops for comments. We would like to thank the NSF for financial support (NSF SES-1355892). Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the National Science Foundation or the National Center for Education Statistics. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

SSRN Electronic Journal, 2000

Using new institutional-level data, we assess the impact of changing federal aid levels on institutional-level Pell revenues. Using various policy instruments associated with Pell generosity, we quantify the sensitivity of institutional Pell revenues to the generosity of the Pell Grant program. In general, we find an elastic response of institutional Pell revenues with respect to the maximum Pell award, where other policy instruments associated with Pell generosity are found to have an inelastic or zero impact. We also document significant asymmetries across institutional selectivity, both in magnitude and in terms of which channel accounts for the measured sensitivity-award values directly or institutional enrollment. In the end, exogenous changes in the federal Pell Grant program are found to correlate strongly with changes in the distribution of needy students and revenues across institutional quality.

1997

Data from a panel of 2,269 colleges and universities track the major changes in educational costs, prices, subsidies, and financial aid over the seven eventful years from 1986-87 to 1993-94. The ability to give student subsidies is recognized as a central determinant of an institution's economic circumstances and strategy. Subsidy resources allow a school to sell its educational services at a net price below the costs of their production. So prices are always less than costs --how much less depends on a school's resources.

2013

We develop a general equilibrium model of the market for undergraduate higher education that captures the coexistence of public and private colleges, the large degree of quality differentiation among them, and the tuition and admission policies that emerge from their competition for students. The calibrated version of the model matches well the aggregate characteristics of U.S. higher education including college attendance in public and private schools, tuition levels, and the distribution of federal aid. Predictions about the distribution of students across colleges by ability and income and about the provision of institutional aid are realistic. We use the model to examine the consequences of federal and state aid policies. A one-third increase in the availability of federal aid increases college attendance by 6% of the initial college population, virtually all of the increase being in state colleges and mainly of poor students. Private colleges reduce institutional aid and use the net funding gain to spend more on educational inputs and to substitute some highly able poor students for less able rich students. Reductions in federal or state aid result in reduced attendance mainly by poor students. Reductions of support to state colleges does not cause private colleges to grow but does improve their quality as demand shifts toward them.

2013

We develop a new general equilibrium model of the market for higher education that captures the coexistence of public and private universities, the large degree of quality differentiation among them, and the tuition and admission policies that emerge from their competition for students. We use the model to examine the consequences of federal and state aid policies. We show that private colleges game the federal financial aid system, strategically increasing tuition to increase student aid, and using the proceeds to spend more on educational resources and to compete for high-ability students. Increases in federal aid have modest effects in increasing college attendance, with nearly half of the increased federal aid offset by reduced institutional aid and increased university educational expenditures. A reduction in state subsidies coupled with increases in tuition at public schools substantially reduces attendance at those universities, with mainly with poor students exiting, and wit...

New Directions for Institutional Research, 1989

Over the last twenty years, federal student aid has become an important element in the revenue flow of many institutions. The main purposes of such aid are to expand access to higher education and to make it easy for families to afford college. Nevertheless, it is apparent that these revenues may also affect both the behavior of colleges and universities and their financial stability. In the view of David Stockman (Feuerbringer, 1985), those aid dollars help colleges and universities "finance their budgets." It is quite likely that federal aid policies affect college pricing and aid Portions of this paper have been reproduced, with permission, from McPherson (1988). The authors wish to express their gratitude to Michael O'Malley for excellent research assistance, to Robert Fenske for heroic editorial help, to the American Council on Education (ACE) for preparing a merged data set, and to Laurent Ross of the ACE for help in programming and documenting the merge. 31 R. I+ Fenske (4.). Sfudying the Impacl of Sfudfnl Aid on Inslilufwns.

The Academic Leadership Journal, 2009