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Scholarships or Student Loans? Subsidizing Higher Education in the Presence of Moral Hazard
Author(s) -
CIGNO ALESSANDRO,
LUPORINI ANNALISA
Publication year - 2009
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2008.01397.x
Subject(s) - subsidy , moral hazard , earnings , economics , loan , scholarship , scheme (mathematics) , nothing , public economics , microeconomics , incentive , finance , economic growth , market economy , mathematical analysis , mathematics , philosophy , epistemology
An income‐contingent loan scheme can at best replicate the allocation brought about by a scholarship scheme financed by a graduate tax, and only on condition that there is nothing to stop the policy maker from using tuition fees as if they were taxes. If that is not possible, even the best loan scheme will exclude some well‐qualified school leaver from university. Even if individual study effort is observable, but more so if it is not, it is not socially desirable that all students should specialize in the subjects that promise the highest graduate earnings.