Citation

Discussion Paper Details

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Title: Education and Borrowing Constraints: Tests Vs. Prices

Author(s): Raquel Fernández

Publication Date: July 1998

Keyword(s): Borrowing Constraints, Education, exams and Markets

Programme Area(s): Human Resources and International Macroeconomics

Abstract: This paper examines the properties of exams and markets as alternative allocation devices under borrowing constraints. Exams dominate markets in terms of matching efficiency. Whether aggregate consumption is greater under exams than under markets depends on the power of the exam technology; for a sufficiently powerful test, exams dominate markets in terms of aggregate consumption as well. The positive effects of income taxation are analysed and the optimal allocation scheme when wealth is observable is derived. The latter consists of a fellowship scheme, in which markets set school prices but the government gives out fellowships, based on need and the ability to obtain a given exam score.

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Bibliographic Reference

Fernández, R. 1998. 'Education and Borrowing Constraints: Tests Vs. Prices'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1913