To gain or not to lose? Tuition fees for loss averse students

Guilhem Lecouteux (1) , Léonard Moulin (2)

1 X-DEP-ECO - Département d'Économie de l'École Polytechnique
2 CEPN - Centre d'Economie de l'Université Paris Nord

We model the educational choice of students whose objectives in terms of salary are conditioned by their social origins. We assume that students from a poor background have a lower reference point than students with wealthier origins. We then study the efficiency of a policy of tuition fees as a mechanism to select students on the basis of their academic abilities. We show that, even in the absence of borrowing constraints, the optimal policy consists in lowering tuition fees for poorer students: since prospective students from a disadvantaged background perceives the possibility of joining the university as a gain, they have a tendency to act too cautiously compared to students with higher aspirations, who are ready to take risky choices in order to avoid what they perceive as a failure, i.e. not joining the university.

Mots clés: Tuition fees

Domaines: Economies et finances

Guilhem Lecouteux, Léonard Moulin. To gain or not to lose? Tuition fees for loss averse students. Economics Bulletin, 2015, 35 (2), pp.1005-1019. ⟨hal-01345548⟩