This paper investigates whether demand-side market pressure explains colleges' decisions to provide consumption amenities to their students. 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 consumption amenities, including spending on student activities, sports, and dormitories. While this taste for amenities is broad-based, the taste for academic quality is confined to high-achieving students. The heterogeneity in student preferences implies that colleges face very different incentives depending on their current student body and the students who the institution hopes to attract. We estimate that the elasticities implied by our demand model can account for 16 percent of the total variation across colleges in the ratio of amenity to academic spending, and including them on top of key observable characteristics (sector, state, size, selectivity) increases the explained variation by twenty percent.
We would like to thank Jon Bartik, Michael Gelman, Jonathan Hershaff, Max Kapustin, Geoff Perrin, Nathan Schwartz, Elias Walsh, and Tamara Wilder for their research assistance. We would also like to recognize the valuable comments and suggestions provided by various seminar and conference participants. We also thank Bridget Terry Long for sharing her data. The views expressed herein are those of the authors and do not necessarily reflect the views of the Education Policy Initiative.