THE EFFECT OF SUBSIDIES IN KIND ON THE CHOICE OF A COLLEGE

It is possible that government subsidies to higher education, disbursed in kind, can produce the anomalous result of reducing the consumption of the good being subsidized. In this paper, I employ individual and college data to estimate the effect of such subsidies on students' choices of college quality. Empirical estimates from a switching regression model with correction for the joint decisions to apply to college and choose the public or private sector are presented. Predictions from the model suggest that students choose a substantially lower quality public college than they would have chosen in the private sector.