Price Discrimination in Education

Josh Wright —  20 May 2010

Tom Smith offers an entertaining and insightful perspective on the economics of higher education:

Without passing moral judgment in any way, I will just observe it is astonishing that higher education in this country has managed to get established a system where consumers have to disclose in detail how much money they have before they are told what they must pay.  I mean Ralph’s has to establish a Price Club and airlines First Class and Coach and so on, but Yale and the University of the Ozarks just have you tell them in detail every last thing about your finances and precisely how desirable your offspring is. Amazing.  And then they squeeze really, really hard.  The producer surplus they are extracting must be simply massive.  Of course, I am paid out of this surplus, so I can’t complain too much.  But it has got to be just hugely inefficient.  And, just to make it perfect, it all gets justified as redistribution to help that most worthy of souls, the very smart but very poor kid from Hellovanotion, Nevada, who works 40 hours a week delousing donkeys and caring for his quadriplegic mother, while still getting 1600 SATs, a 4.6 and captaining his/her wind ensemble to international glory.  And is President of Key Club.  And yet, how much of the surplus extracted actually goes to put the poor, deserving kid through Duke?  I tend to think, probably not that much, percentage-wise.  Maybe about as much as my income taxes go to support the hard working but poor single mom who just needs a little help so she can get that community college degree and never be on welfare again.  So big emotional but relatively small statistical impact. Just expressin’ a natural curiosity here.  Anyway, check out the book.

Oh, he’s talking about this book.

One response to Price Discrimination in Education


    A bigger problem: the system is apparently set up to tax rich students to benefit low-income students. But why should rich students be paying for education of poor students? If the society thinks poor students should be subsidized, all taxpayers (or all rich taxpayers) should be paying that subsidy, not just rich students. The result of the current system is that a middle-class family with several kids in college ends up providing a huge direct subsidy to poor students, while the family of Paris and Nicki Hilton provides none.