Local University Supply and Distance: A Welfare Analysis with Centralized and Decentralized Tuition Fees

Transcription

1 Ital Econ J (216) 2: DOI 1.17/s z RESERCH PPER Local University Supply and Distance: Welare nalysis with Centralized and Decentralized Tuition Fees Elias Carroni 1 Berardino Cesi 2 Dimitri Paolini 3,4 Received: 15 July 215 / ccepted: 11 pril 216 / Published online: 25 pril 216 Società Italiana degli Economisti (Italian Economic ssociation) 216 bstract We consider a two-city model in which two university systems may occur: a centralized system in which a social planner sets the tuition ee and a decentralized system in which universities are ree to set their own ees. Within these two systems we also analyze two urther scenarios, one with only one university and another with one university in each city. Individuals with heterogeneous innate ability decide whether to go to university according to the average ability (peer group eect henceorth), a tuition ee and mobility costs, i any. In the centralized system, the welare is maximized by opening two ree-o-ees universities, one in each city. This maximizes university participation and eliminates the impediment o mobility costs. In the decentralized system, whether a single-university or a two-university system is more welare enhancing depends on the mobility costs. When mobility costs are suiciently low, then having only one university is welare maximizing. When, instead, mobility costs are high, two universities result to be welare enhancing. Keywords Peer group Mobility cost Tuition ees JEL Classiication L2 L3 B Elias Carroni elias.carroni@u-cergy.r 1 ThEM, University o Cergy-Pontoise, 33 Boulevard du Port, 9511 Cergy-Pontoise, France 2 Department o Economics and Finance, Università di Roma Tor Vergata, Rome, Italy 3 DiSea, CRENoS, Università di Sassari, Sassari, Italy 4 CORE, Université Catholique de Louvain, Leuven, Belgium

2 24 E. Carroni et al. 1 Introduction The welare eect o a change in the number o universities has been widely investigated both theoretically and empirically. There exists strong empirical evidence o the necessity o widening higher education participation by means o an increasing number o universities. 1 Mobility costs and the peer group eect at university (as measured by the average ability o the students) have been ound to be the main determinants o the individuals sorting behavior and o the welare eect resulting rom a change in the number o universities. 2 Recently, Cesi and Paolini (214) showed that the introduction o a new university induces a welare improvement that is stronger when the university system is symmetric (that is, universities have the same average student ability). s a matter o act, mobility costs and the peer group eect are not the only determinants o individual behavior. Indeed, the choices o individuals and, consequently, the welare implications o widening university participation through the change in the number o universities may crucially depend crucially on the tuition ees. Following Cesi and Paolini (214) who use students average ability as a proxy or the peer group eect, we study the welare eect rom introducing a new university in a system o endogenous tuition ees. We study two alternative systems. The main dierence between the two is in the determination o the tuition ee. In a centralized system, a social planner determines the tuition ee that maximizes social welare. 3 In the decentralized system, each university sets its own tuition ee. In the decentralized system, the universities set the tuition ee that maximizes the total revenue rom the collected ees: the optimal ee comes as result o a trade o between peer group and number o enrolments. Indeed, less able individuals rerain rom enrolling in response to an increase o the ee. This will increase the peer group but it will result in a lower total number o students. In the centralized system, we ind that the welare is maximized when the social planner sets zero ees. n increase o the ee, in act, would have two dierent eects. Firstly, it will boost the average ability, as less able individuals abstain rom enrolling. On the other hand, given that some individuals preer to remain unskilled, university participation will be reduced. Consequently, we will have an ambiguous eect on the total amount o collected ees, since a higher per-student ee is paid by less individuals. We show that, passing rom a positive to a zero ee, the welare gains rom more participation always oset the losses rom lower peer group eect. Thus, the social planner maximizes welare simply by maximizing university participation. natural corollary o this result is that a two-university system induces a higher welare 1 See Cesi and Paolini (214) or a recent survey. 2 See, among others, Frenette (24) or the role o mobility costs and Sacerdote (21) or the peer group eects. Pigini and Staolani (215) oer a theoretical and empirical analysis o costs, geographical accessibility and quality o education with Italian data. Similar studies are provided by Gibbons and Vignoles (212)andDrewes and Michael (26) respectively on data rom England and rom ON (Canada). 3 Welare is measured by the sum o students utilities and the total amount o ees collected.

3 Local University Supply and Distance: Welare nalysis than a one-university system or any mobility cost. 4 In other words, i a ree-o-charge university is opened in each city and individuals do not pay a ee and save on the transportation cost, while enjoining the same average ability at the home university. This result is in line with the inding o Cesi and Paolini (214) that widening participation through the introduction o a new university is welare improving. In the decentralized system, results become richer. With a one-university system, the optimal ee will be such that high-ability individuals rom both cities go to university, provided that the mobility cost is suiciently low. s the mobility cost gets higher, the monopolistic university can collect a higher amount o ee-revenue by setting a ee such that only local individuals (who ace no mobility cost) ind it convenient to go to university. In the duopoly case, each university attracts local individuals setting the ee that maximizes the ee-revenue. Which system between a two-university or a oneuniversity decentralized system depends on the mobility cost. When the mobility cost is low, one university is socially desirable compared to the two-university system. This is because a monopolistic university sets a lower the ee in order to attract also nonlocal individuals, and this widens participation and increases both individuals welare and total amount o ees collected. When, instead, the mobility cost gets higher, the monopolistic university only attracts local individuals, thus participation is higher (in our model double) in the two-university system. Our results suggest that a centralized system with a ree-o-charge university is preerred to the decentralized one, since when the choice o the ee is decentralized to universities, the latter maximize the total amount o ee without concerns on social welare. Our paper aims to contribute to the literature on students sorting behavior at university (Del Rey 21; De Fraja and Iossa 22; Del Rey and Wauthy 26; Gautier and Wauthy 27; Poyago-Theotoky and Tampieri 214). In particular, we study the role o peer group eect by integrating an endogenous tuition ee in Cesi and Paolini (214). Unlike Gautier and Wauthy (27), whose main ocus is the study o the tension between teaching and research, our ocus is on the impact o the decentralization, the ees scheme and the peer group on students choice and welare. The remainder o this paper is divided as ollows. ter having presented the main ingredients o the model in Sect. 2, we provide the analysis o the centralized system (Sect. 3) and o the decentralized system (Sect. 4). In Sect. 5, we present some inal discussion and we draw the conclusions. 2 The model We consider a spatial model o two cities indexed j =, B, in which each city may host one university that produces graduates. In each city, individuals are uniormly and independently distributed according to their innate ability θ [, 1], with the total population in each city normalized to 1. We model two systems according to whether the tuition ee, paid by each student to attend university, is set by a social planner 4 We borrow the welare analysis o Cesi and Paolini (214), who show that, when the ee is zero, the introduction o a new university induces a welare improvement.

4 242 E. Carroni et al. or by each university. 5 We deine as centralized the system in which the ee is set by the social planner while we deine decentralized the system in which each university sets its own ee. In the centralized system we assume that the social planner sets the ee equal across universities and across students. The utility o each individual born in city i attending university j is: 6 U j i = θ i (1 θ j ), (1) where θ j measures the average ability at the university j that henceorth will also be called the peer group eect. The distance between universities (cities) is normalized to 1. student located in i has no mobility cost o attending university i, but she aces a linear cost t i attending j = i. When instead individual i does not attend university, she is deined as unskilled, u, and her utility is: U i,u = θ i. (2) 3 Centralized System In this section, we present a centralized system where the social planner decides the tuition ee charged to students enrolled at the university. We analyze two systems, one with only one university and the other with one university in each city. The twouniversity system may include two dierent cases, according to whether universities have the same (symmetric) or dierent (asymmetric) average ability. We will ind the optimal ees in both situations. The social planner sets the ee to maximizing social welare, computed as the sum o individuals utilities and the total amount o collected ees, as deined as it ollows: θ θ 1 ( ) W = U,u dθ U θ ( θ )dθ U B θ ( θ B ) t dθ θ B θ θ B U B,u dθ U B θ B B ( θ B )dθ θ 1 dθ dθ θ θ B θ B θ B dθ θ B ( ) UB ( θ ) t dθ dθ. (3) The cuto θ j with j {, B} represents the lowest ability such that a student preers the home university rather than remaining unskilled. The irst line in Eq. (3) is the aggregate utility o individuals born in city, the second one o B-born people and 5 In line with what we ind in the paper, Jongbloed (24, 25) show how tuition ees charged by public universities are ixed or negligibly dierent in countries like ustria, Belgium, Denmark, Germany, Italy and Spain. 6 The model does not change i we introduce a amily income that is heterogeneous among individuals. Being the tuition ee ixed, it does not enter the individuals sorting behavior. It is possible then to show that the model is robust to the introduction o an individual-speciic income.

5 Local University Supply and Distance: Welare nalysis the third line represents the total amount o ees collected. Notice that in the symmetric case with no commuting we will have θ = θ B = 1, whereas in the asymmetric case θ = 1 >θb, so that some o the integrals in Eq. (3) may disappear. In what ollows we irst ind the optimal ee in each scenario, then we ind which o these ensures the highest welare. One-University System. Let us assume only one university in city and denote the average ability in university by, it is easy to check that an individual living in goes to the university i U () U,u, that is, when her ability is suiciently high, in particular θ = θ and θ = 1. Similarly, an individual living in B goes to university only i suicient able so as to oset both the mobility costs and the tuition ees, i.e., she goes to university when her ability is such that θ t = θ B. Plugging these cutos into the welare unction we obtain: W M = t t θ 1 M U,u dθ U B,u dθ ( U B () t ) dθ dθ U ()dθ) dθ. (4) t Beore studying the welare eect o a ee in such a scenario, irstly note that in the case o zero ee we have θ = and θ = t/, so that everybody goes to university with only individuals rom B acing the mobility cost, the welare is: W M = t/θm ( ) U ()dθ U B,u dθ UB () t dθ. (5) t/ Making the dierence between Eqs. (5) and (4) and ater some simpliications it is easy to veriy that W M W M = 2, letting us conclude that the no-ee solution is always preerred. We are then able to state the ollowing Lemma: Lemma 1 The optimal ee in a centralized one-university system will be equal to zero. Two-University System. Let us assume now the scenario with one university in each city, university and B respectively. The result in Cesi and Paolini (214) also applies here and it is possible to check that there exist two dierent equilibria. The irst one is symmetric, meaning that universities have the same average ability. In this case, no individual has incentives to switch city because o the mobility cost and then the only choice is between going to university and remaining unskilled in their own city. Welare is then given by: W S = 2 θ S U,u dθ 2 U (θ S)dθ) 2 dθ (6) θ S θ S

6 244 E. Carroni et al. where θ S is the average ability in both universities. Similarly to the one-university system, it is straightorward to veriy that W S = 2 U ()dθ 2 dθ >W S (7) which let us conclude again that the zero ee solution induces a higher welare. We now consider the asymmetric equilibrium assuming θ > θ B wlog. In other words some individuals living in B preer to enrol at the university. With t > the welare is then: W = θ U,u dθ t θ θ B θ B ( U B ( θ ) t U B,u dθ ) dθ θ B 1 t θ θ B It is easy to see that the welare with zero ee is: W θ θ B = t U B B ( θ B )dθ U ( θ )dθ θ dθ θ B ( ) UB B ( θ B )dθ t θ θ B UB ( θ ) t dθ U ( θ )dθ 2 dθ. (8) θ dθ. (9) gain, simple algebra shows that W > W, thus we can conclude the ollowing: Lemma 2 The optimal ee in a centralized two-university system will be equal to zero. Lemmas 1 and 2 state that when university cannot set their own tuition ee that, in turns, are set to maximize the sum o the individuals utilities and the aggregate ee-revenue, a zero ee solution is always preerred. This result holds or both systems, with one and two universities. The intuition is the ollowing. Let us assume to start rom a zero ee. n increase in the tuition ee will have many dierent eects. On the one hand, since the lowest-ability individuals rerain rom going to the university, the peer-group eect gets augmented at the beneit o enrolling individuals. On the other hand, it also unambiguously reduces the utility o the unskilled individuals that preer not to pay an enrolment ee. Finally, even i the peer group eect gets stronger, the net utility o students is not always higher than in the case o a zero ee, as the increase in the peer group might be oset by the presence o the ee. Overall, it turns out that the negative eects on welare are stronger than the gain that a positive ee would generate in terms o more aggregate ees and higher human capital. Once having determined that the optimal ee would be zero both in a one and in a two-university system, we are able to state which is the most eicient number o universities thanks to Cesi and Paolini (214). Indeed, they show that the twouniversity system is always welare improving in comparison with one university when the ee is zero. This allows us to conclude the ollowing:

7 Local University Supply and Distance: Welare nalysis Proposition 1 In a centralized system, a two-university system induces a higher welare than a monopolistic university. Proo We recall the results provided by Cesi and Paolini (214), who showed how W S > W > W M in the case o zero ees. The main result behind Proposition 1 is that the highest possible welare is obtained by maximizing participation. In a centralized system, the social planner has two instruments to enorce university participation, that are the tuition ees and the number o universities. Setting ees equal to zero allows all individuals to get skilled. Clearly, the ee equal to zero is consistent with our hypothesis o zero cost o introducing a new university. ssuming positive university costs would have two eects. First, it would increase the optimal ee in both systems, the monopolistic and duopolistic university. Second, it might also change the welare ranking between monopoly and duopoly. We would expect that monopoly would dominate or low mobility costs whereas duopoly does or high mobility costs. two-university system induces a reduction o the negative eects mobility costs have on the students enrolment at the university. Mobility costs will be de acto completely oset in a symmetric two-university system. In such a scenario, all individuals go to the home university, so that participation is maximal and mobility costs do not play any role. 4 Decentralized System In this section, we present a decentralized system where the tuition ee is set by the universities. s in the previous section we ind the optimal ee in both scenarios o only one and two universities. We conclude the section by showing which scenario induces the highest welare. 4.1 Decentralized One-University System We maintain the assumption o one university located in the city. In this scenario, each student can only choose between going to the university and being unskilled. The individuals who decide to attend university must pay the ee and ace the mobility cost t, i any. For individuals living in, the only cost o university is given by the ee, whereas individuals living in B ace both the ee and mobility costs. Once mobility costs have been aced and ees are paid, individuals can move reely between cities, so that the peer group eect is endogenous Individuals: Sorting Behavior Let us deine the peer group at the monopolistic university as. n individual with ability θ living in city will go to the university i her ability osets the payment o the ee, i.e. θ. Hence, the average ability o individuals rom city who attends university is given by:

8 246 E. Carroni et al. θ m = θdθ dθ = 2. (1) Following the same argument, a student living in city B has ability such that θ t, so that the average ability o individuals born in city B who goes to university is: θ m B = t θdθ t dθ = t 2. (11) Computing the weighted average o θ m and θ m B as determined in (1) and (11), is given by the ollowing: = (1 )θ m t (1 )θb m (1 ) (1 t ) = t 2θ 2 M t2 4 4θ 2 M 2t Solving with respect to gives: ( ) = 2θ 2 M t 4θ 4 M 8θ 3 M 4θ 2 M t2. (12) Notice that ( ) has to be non-negative, ( ) t < and > 1/2. 7 For presentation purposes, these conditions are summarized in the ollowing lemma: Lemma 3 For the ee to be positive, it is needed either (i) < 2 2 and (i.1) t [,θm 2 ), or (i.2) t (θm 2, 3θM ), where , or (ii) (2 2, 3/4) and t < 3θM The conditions stated in Lemma 3 are depicted in Fig. 1. Figure 1 has to be interpreted looking rom low to high levels o.first, is never lower than 1/2, which is the average ability that would result with neither mobility costs nor tuition ees. Moreover, must be suiciently high, otherwise nobody is willing to pay a positive ee. Nevertheless, ( ) is an increasing unction in the region between the red and the blue curve, so that once reaches the level described by the blue curve, the ee turns out to be not worth it to be paid by agents that live in B, i.e., < t. 4.2 University In the decentralized system, the university sets the ee that maximizes the total ees collected. We will study the two possible scenarios according to whether university sets its own ee to attract only local or also non local individuals. 7 For the sake o completeness, there exists another solution, 2 ( ) = 2θ 2 M t 4θ 4 M 8θ3 M 4θ2 M t2, that never satisies the conditions.

9 Local University Supply and Distance: Welare nalysis ttracting local and non-local. Let us deine the total ees collected by the university as TF L N with: TF L N = dθ t dθ. (13) The two integrals represent the ees collected rom individuals living in and coming rom B respectively. I the university attracts both local and non-local, it maximizes TF with respect to subject to the constraint described in Eq. (12). The ollowing Lemma gives the solution. Lemma 4 The optimal ee when attracting local and non-local students is: Proo The maximization problem is: M = t t (14) max TF = dθ t dθ. (15) ter substituting or (12) the maximization problem (15) becomes: ) (t 2 ) (t 2θ 4(θ 2M M 1) 2 θ 2M t2 max. (16) For any t, the unction ( ) in (12) is increasing in, so that we ind a corner solution. ccording to Lemma 3, any higher than 2 2 will lead to a situation where nobody can be attracted rom city B, as the university has incentive to increase (and thus the ee ) up to the point where the blue curve in Fig Hence, the optimal θm will lie in the interval [ 2 1, 2 2] and, given the monotonicity, this allows us to conclude that θm = 2 2. Plugging this result into the unction ( ),we get (14). Notice that M is decreasing in t, takes positive values and satisies Lemma 3 only i t < 6 4 2, as depicted in Fig. 2. Intuitively, once the university has incentives to induce the enrolment o some nonlocal individuals, it has to reduce the ee in order to make it worth or them to ace the mobility cost. Once the mobility cost becomes suiciently high, attracting non-locals becomes too costly in terms o ee reduction. ttracting only local. Now, let us assume that the university attracts only local student. In such a case, the peer group is simply given by the θ m in Eq. (1), that solved with respect to θ m gives: 8 Clearly this is not optimal: we will solve the maximization problem where the university serves only local below.

10 248 E. Carroni et al. t 1/2 t> ( ) < t ( ) > 1/ /4 Blue curve: t( )= 3θ 2 M 4θ3 M, Red Curve: t( )= θ2 M Δ or 2 2 θ 2 M Δ or < 2 2 Fig. 1 Decentralized one-university system: mobility cost and average ability compatible with mobility o individuals living in B M t Fig. 2 Decentralized one-university system: optimal ee with mobility o individuals living in B θ m = 1 4 (1 1 8 ) (17) Now the total ee is simply: TF L = θ m dθ (18)

11 Local University Supply and Distance: Welare nalysis That as above is maximized with respect to. Notice that, or this to be an equilibrium, it is needed that nobody rom city B is willing to enrol at university paying the ee m, i.e. t m >θ m( m ). Thereore, the optimal ee in the monopoly case will be given in the ollowing Lemma. Lemma 5 In a decentralized one-university system: 1. I t < 6 4 2, the optimal ee will be M = t t and able individuals rom both cities go to university. 2. I t 6 4 2, the optimal ee will be m = and only able individuals in go to university. Proo The maximization o TF L with respect to has an internal solution at m = The resulting average ability will be θ m = In order to have t m > θ m( m ), we need the mobility cost to be suiciently high (t > 1/3). Thus, when t < 1/3, only the equilibrium in point 1 is viable. Oppositely, when t 6 4 2, only the equilibrium in point two is reachable. When t [1/3, 6 4 2]: M M dθ t M M dθ = ( 136 t = m θ m ) > m dθ. Lemma 5 shows how the optimal ee depends on the mobility costs. When mobility costs are relatively low, then the ee will be a decreasing unction o the mobility cost because, as the latter increases, the university has to charge a lower ee to attract individuals rom B (point 1 in Lemma 5). Once the mobility cost reaches a certain level, then the optimal ee will be such that only locals go to university. In this case, since none rom city B goes to university, mobility costs do not play any role in the determination o the optimal ee (point 2). 4.3 Decentralized Two-University System We now consider the case o one city in each university. We will ocus only on symmetric equilibria where universities have the same average ability. The extant literature has shown how when mobility costs are suiciently low an asymmetric university system may arise, in particular characterized by a top (high average ability) and a bottom (low average ability) university coexisting, with the top one attracting the ablest students. In what ollows we borrow the result rom Cesi and Paolini (214), that is, only symmetric equilibria are strong Nash. lthough we do not directly deal with the concept o strong Nash equilibria we only consider symmetric equilibria to ease the tractability o the results. Let us assume university j with peer group θ j to set a ee j.

12 25 E. Carroni et al. Lemma 6 In a decentralized two-university system, the optimal ee will be equal to m = and the ablest individuals in each city join the home university. Proo ssuming θ = θ B = θ, all agents in city j {, B} go to university i their ability is θ j θ j, thus the average ability in both universities is θ j = 1 4 ( ) j (19) It turns out that universities act as local monopolies and they maximize the amount o ees collected simply by setting j = j = m = The important point o Lemma 6 is that the optimal ee chosen by two symmetric universities will be the same as the one that would be chosen by a monopolistic university that serves only local. In act, in both cases universities behave as local monopolies, maximizing the total amount o ee they can collect on local. ter comparing the welare in the two cases o monopolistic and duopolistic university system, we can state the main result or the decentralized scenario in the ollowing proposition. Proposition 2 In a decentralized system: (i) i t one-university system induces a higher welare than a two-university system, (ii) i t > atwouniversity system induces a higher welare than a one-university system. Proo I t > 6 4 2, the two alternative systems are a two-university system and a one-university system that serves only local individuals. Since the ee will be the same in both regimes, a two-university system will always give a higher welare as it doubles participation. I t 6 4 2, the one-university system gives the result o Lemma 14, that gives always a higher welare than the two university system. Indeed: W d ( m m ) = 2 θ m 2 m θ m U,u dθ 2 m U θ m dθ = 1 9 ( 12 3 m (θ )dθ ) (2) M W M ( M ) = θ M t M M t θ M U,u dθ 1 U B,u dθ M U ( )dθ θ M (U B (θ M ) t ) dθ M θ M dθ t M θ M dθ

13 Local University Supply and Distance: Welare nalysis t = ( 4γ t 3 ) 2 44 < 1 9 ( 12 ) γ 48γ ( 2 ) 2 2 (21) where γ = 136 t In the equilibrium described in Lemma (6), universities behave as local monopolists thereore they will set a ee that is the same as in the one-university system when the university attracts only locals (i.e., when t is high). Clearly, the two-university system is always welare improving, since some people enrol in both cities rather than in only one. When, instead, the mobility cost is suiciently low, a one-university system results in a wider university participation and a higher welare because it charges a ee lower than the one in the two-university system. The main reason is that a monopolistic university inds it more proitable to attract non-local individuals by charging a low ee able to oset their mobility costs. 5 Conclusion This paper contributes to the literature on the eect o peer group ability on the university choice when individuals pay a tuition ee and ace a mobility cost in a two-city model. We study two dierent tuition ee schemes according to whether universities are ree to charge their own ees. In a centralized system, in which tuition ee are set by a social planner, a two-university system induces a higher welare than a one-university system. The main driver o the welare improvement is university participation, achieved by both instruments o a zero tuition ee and one more local university. In a decentralized system, in which universities are ree to charge their own tuition ees, whether a one or two-university system induces a higher welare depends on mobility costs. By ocusing on symmetric equilibria (universities have the same average ability), we ind that i mobility costs are suiciently high, then a two-university system is preerred as it maximizes participation and completely osets the eect o the mobility costs. In particular, the high-ability individuals in both cities go to the home university and none ace mobility costs. When mobility costs are low, instead, a one-university system is preerred because it charges a lower ee to attract also non-local students. This has positive eects on university participation and university education achievement. Because o the symmetry each university behaves as a local monopolist in the two-university system, thus somehow reducing the level o welare desirability o the two-university system compared to the one-university system. In our model, universities act as local monopolies in the decentralized system. I universities were allowed to compete more iercely, i.e., letting each o them poach ablest individuals rom the other city, then the decentralized two-university system may induce competing universities to charge lower ees. I this was the case, we would expect the two-university system to be welare enhancing compared to the one-

14 252 E. Carroni et al. university scenario even or small mobility costs. In the limit case o no mobility costs, or example, duopolistic universities would compete à la Bertand, thus resulting in a higher participation. Nonetheless, there are additional welare arguments in avor o a one-university decentralized system when mobility costs are suiciently small. The present model assumes zero cost o introducing a new university. ssuming positive costs o university supply, which would be aced by the universities themselves in a decentralized regime, would have two eects. First, the optimal ees would adjust upwards in order to cover this cost. Second, it would change the welare ranking between opting or a one-university and two-university system since one university rather than two would clearly avoid a cost duplication. cknowledgments We thank the associate editor Michele Polo and two anonymous reerees or their helpul comments. The usual disclaimers apply. The irst author conducted this research as part o the project Labex MME-DII (NR11-LBX-23-1) and thanks the Program Visiting Scientists o the University o Sassari or inancial support. The third author acknowledges the inancial support o MIUR-PRIN 213, Regione Sardegna Grant (Research Grant ex L.R ) 212 and Fondazione Banco di Sardegna. Reerences Cesi B, Paolini D (214) Peer group and distance: when widening university participation is better. Manch- Sch 82: De Fraja G, Iossa E (22) Competition among universities and the emergence o the Elite Institution. Bull Econ Res 54(3): Del Rey E (21) Teaching versus research: a model o State University competition. J Urban Econ 49(2): Del Rey E, Wauthy X (26) Mencioń de calidad: reducing ineiciencies in higher education markets when there are network externalities. Investig Econ 3(1): Drewes T, Michael C (26) How do students choose a university? n analysis o applications to universities in Ontario, Canada. Res High Educ 47(7):781 8 Frenette M (24) ccess to college and university: does distance to school matter? Can Public Policy 3(4): Gautier, Wauthy X (27) Teaching versus research: a multi-tasking approach to multi-department universities. Eur Econ Rev 51(2): Gibbons S, Vignoles (212) Geography, choice and participation in higher education in England. Reg Sci Urban Econ 42(1 2): Jongbloed B (24) Funding higher education: options, trade-os and dilemmas. In: Fulbright brainstorms 24 new trends in higher education, pp 1 11 Jongbloed B (25) Tuition ees in europe and australasia: theory, trends and policies. In: Smart J (ed) Higher education: handbook o theory and research, vol 19, pp Springer Pigini C, Staolani S (215) Beyond participation: do the cost and quality o higher education shape the enrollment composition? The case o Italy. Higher education, pp 1 24 Poyago-Theotoky J, Tampieri (214) University competition and transnational education: the choice o branch campus. CRE discussion paper series, pp Sacerdote B (21) Peer eects with random assignment: results or dartmouth roommates. Q J Econ 116(2):681 74