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is a harvard degree really worth the same as a colgate degree?

A question for my brothers and sisters in the economics profession: Why do very different private colleges charge roughly the same tuition? For example, a full blown elite research 1 school like the University of Chicago charges about $42k per year. Harvard charges about $39k if you add tuition and the required health fee together. An elite liberal arts college like Swarthmore charges about $40k a year. A much less well known private college like DePauw charges $38k a year. Colgate charges about $45k per year.

The big savings come from going to tiny schools (e.g. Coe charges $33k a year, or Notre Dame of California charges $24k a year). Why is the price/prestige curve flat except for tiny liberal arts colleges? If you believe the Dale/Krueger paper on college choice and income (e.g., doesn’t matter which college you go to, for the most part), then these prices merely reflect that colleges are just selling a generic job market certification that any institution can provide. Other explanations?

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Written by fabiorojas

May 21, 2012 at 12:01 am

Posted in economics, education, fabio

11 Responses

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  1. I think you’ve got this a bit backward. Assume colleges are like firms (i.e., profit-maximizing), that they can produce education at marginal cost zero, and that they have a capacity number of students which they can educate given their current facilities. The demand curve for Harvard clearly lies above the demand curve for Colgate – you can read this right off the number of applicants they get. At 40k, both Harvard and Colgate sell up to their capacity, with Colgate rationing their capacity to some extent, and Harvard rationing their capacity to a great extent. Colleges like Notre Dame of California (and almost every private college not charging around 40k) are more or less admitting every college-ready candidate they can, meaning that if they rose their prices, they would sell than their current capacity.

    All of this is a long way of saying that the flat prestige/price curve has to do with Harvard setting a price way below the price at which they could fill their school, for non-profit maximizing reasons, rather than Harvard providing less valuable education.

    afinetheorem

    May 21, 2012 at 1:44 am

  2. [...] is-a-harvard-degree-really-worth-the-same [...]

  3. Other questions one might ask are: What generates student market preferences for particular schools? Part of the answer might involve a. carefully promulgated myths about school-life-outcomes causality; and b. information asymmetries.

  4. Though some 2nd tier private colleges charge really high tuitions, I would guess others charge less than almost any in the 1st tier. Am I right?

    Michael Bishop

    May 21, 2012 at 2:39 pm

  5. Assessing the “true” tuition gets difficult, because many private schools charge a “list price” but then offer a lot of scholarships, both merit and need based. Schools also differ in terms of whether they charge extra fees that are not called tuition. A few schools have such a good endowment that they don’t actually need to charge tuition at all to make ends meet (apart from Harvard, Grinnell College comes to mind) but do so anyway as part of fitting in with other schools. On the low-prestige end, some schools may charge a lot if they can persuade their students to take out subsidized student loans to pay the freight.

    olderwoman

    May 21, 2012 at 3:43 pm

  6. For one thing colleges don’t necessarily try to maximize retail price. They probably don’t minimize it either but they do limit it. More importantly, income is very different. Research universities, especially elite ones, are subsidized, partly by endowments and partly by research income.

    Bill Roy

    May 21, 2012 at 4:19 pm

  7. “If you believe the Dale/Krueger paper on college choice and income (e.g., doesn’t matter which college you go to, for the most part)”
    Robin Hanson says that’s a common misinterpretation of the study.

    Wonks Anonymous

    May 21, 2012 at 4:50 pm

  8. [...] is a harvard degree really worth the same as a colgate degree? « orgtheory.net [...]

  9. To reiterate what Wonks Anonymous says, that interpretation of the Dale/Krueger paper, while sexy, isn’t accurate. But for some reason it keeps getting reproduced. Here’s another take on it. http://www.halfsigma.com/2006/08/attending_an_iv.html

    shakha

    May 22, 2012 at 6:01 pm

  10. Reblogged this on Class(ic) Stories.

    amerkhan

    May 23, 2012 at 3:56 pm

  11. [...] college you go to doesn’t matter much. A number of people, including Robin Hanson and Shamus Khan, have argued that this is an incorrect reading of the [...]


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