Brian Jacob, Brian McCall, Kevin Stange
Education provides both investment and consumption benefits; the former being realized after schooling is completed but the latter accruing only while schooling is actually taking place. In this paper, we quantify the importance of consumption value considerations to schooling decisions in the context of higher education and examine the implications for colleges’ strategies for attracting students. To do so, we estimate a discrete choice model of college demand using micro data from the high school classes of 1992 and 2004, matched to extensive information on all four-year colleges in the U.S. We find that most students do appear to value college attributes which we categorize as “consumption,” including college spending on student activities, sports, and dormitories. In fact, students appear to be more willing to pay for these non-academic aspects of colleges than typical academic aspects, such as spending on instruction. Estimates suggest that this taste for consumption amenities is broad-based among many student groups, whereas taste for academic quality is confined only to the high achieving. Consequently, policies that reallocate financial resources away from these non-academic aspects to instruction would not enable most schools to attract more or better students, as some policy-makers suggest. However, since student preferences for college attributes are very heterogeneous different colleges face very different incentives for changing their characteristics depending on their current student body and those they are trying to attract.
Our empirical approach makes a number of improvements on existing literature, including accounting for unobserved choice set variability created by selective admissions, controlling for fixed unobserved differences between schools and price discounting, and permitting greater preference heterogeneity.