Public Universities, Tuition and Competition – A Tiebout Model

A simple Tiebout model is presented where states provide university education to both immobile and mobile students. State governments choose the quality of public universities by trading off the value of education for the local immobile student population and the costs, net of tuition revenues, of running the university. The quality of education and the assignment of students to universities in an e±cient allocation are characterised. It is shown that decentralised decisions result in e±cient choices if states are allowed to choose tuition levels freely. If tuition is capped, ine±ciently low qualities are likely to arise.

Schwager, Robert (2007), Public Universities, Tuition and Competition – A Tiebout Model, ZEW Discussion Paper No. 07-056, Mannheim.