DP2090 Equal Opportunities in Education: Market Equilibrium and Public Policy

Author(s): Gianni De Fraja

Publication Date: February 1999

Keyword(s): Education , student loans , University

JEL(s): D63 , I28

Programme Areas: Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP2090.asp

This paper investigates whether individual decisions lead to equality of opportunity in education, defined in the specific sense of irrelevance of parental income for university attendance. We show that, even if households can borrow in the capital market, the laissez-faire equilibrium exhibits an income bias, in the sense that individuals from high income households are more likely to attend university. We then study the welfare maximising policy of a utilitarian government. Its features are opposite to the free market equilibrium: with plausible assumptions, at low income levels, the tuition fee should be designed in such a way so as to create a bias in favour of low income households.