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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2005:2:
Escaping Mass Education – Why Harvard Pays

Andreas Bergh () and Günther Fink ()

Abstract: Private universities, as opposed to publicly financed ones, are dominant in some countries and almost non-existent in others. We develop a dynamic model to demonstrate that private providers emerge as soon as they can profitably sell an elite signal to the most highly talented. As private providers engage in cream skimming, the returns to publicly provided education decreases, but the average return to higher education increases because of the signaling benefit created. We use numerical simulations to demonstrate the dynamic implications of our model, and provide some basic empirical evidence in support of the theory presented

Keywords: Higher education; tertiary education; Signaling; (follow links to similar papers)

JEL-Codes: H52; I22; (follow links to similar papers)

19 pages, January 11, 2005

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