Working Paper: CEPR ID: DP6508
Authors: Stijn Kelchtermans; Frank Verboven
Abstract: Public systems of higher education have recently attempted to cut costs by providing financial incentives to institutions who reduce the diversity of their programs. We study the profit and welfare effects of reducing product diversity in higher education, against the background of a funding system reform in Flanders (Belgium). We find that dropping duplicated programs at individual institutions tends to be socially undesirable, due to the limited fixed cost and variable cost savings and the students' low willingness to travel to other institutions. Furthermore, we find that the financial incentives offered to drop programs may be very ineffective, leading to both undesirable reform and undesirable status quo. These findings emphasize the complexities in regulating product diversity in higher education, and serve as a word of caution towards the various decentralized financial incentive schemes that have recently been introduced.
Keywords: Higher Education; Product Diversity
JEL Codes: C25; I2; I23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reducing product diversity (cutting programs) (L15) | social welfare (consumer surplus losses outweigh savings) (D69) |
| concentration index funding system (D30) | incentives for program cuts (H53) |
| incentives for program cuts (H53) | socially undesirable reforms (P37) |