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Title: Reducing Product Diversity in Higher Education

Author(s): Stijn Kelchtermans and Frank Verboven

Publication Date: October 2007

Keyword(s): higher education and product diversity

Programme Area(s): Industrial Organization

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.

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Bibliographic Reference

Kelchtermans, S and Verboven, F. 2007. 'Reducing Product Diversity in Higher Education'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6508