Mariya Teteryatnikova

Horizontal Product Differentiation: Disclosure and Competition

The unraveling argument says that when a rm may produce di erent qualities and quality is unknown to consumers, the rm has an incentive to disclose the private information as in any pool of rms there is a best quality rm and this rm has an incentive to disclose. Recent literature has established that this argument does not carry over to an environment where the product is not vertically, but horizontally di erentiated. This paper argues that with horizontally di erentiated products, competition restores the unraveling argument. In a duopoly market we show that all equilibria of the disclosure game have rms fully disclosing the variety they produce.

Expansion of Higher Education and Declining Quality of Degrees

In this paper we study theoretically how the expansion of higher education could be associated with several factors indicating a decline in the quality of degrees. We assume that the expansion of tertiary education happens through three channels and show how they are likely to reduce average study time, average wages and increase grades. Firstly, universities have an incentive through public and private funding schemes to increase their student body beyond a level where they can keep their requirements on a high level. Secondly, due to skill-biased technological change, employers have the incentive to employ mostly labour with a higher education degree. Thirdly, students have the incentive to acquire a college degree due to the employment rules, the university application rules and through the rising social reputation of education. We develop a parsimonious dynamic model in which a student, a college and an employer repeatedly make decisions about requirement levels, performance and wage levels. Our model shows that if (1) universities have the incentive to decrease entry requirements, (2) employers are more likely to employ labour with a higher education degree and (3) all types of students enroll in colleges, the grade will not necessarily act as a mechanism to make weaker students study to catch up with the more able students. In order to reestablish a quality guaranteeing mechanism, entry requirements should be set to a higher level.

Does the Growth in Higher Education Mean a Decline in the Quality of Degrees? The Role of Economic Incentives to Increase College Enrolment Rates

In this paper we construct a theory about how the expansion of higher education could be associated with several factors that indicate a decrease in the quality of degrees. We assume that the expansion of tertiary education takes place through three channels, and show how they are likely to reduce average study time, academic requirements and average wages, and inflate grades. First, universities have an incentive to increase their student body through public and private funding schemes beyond a level where they can keep their academic requirements high. Second, due to skill-biased technological change, employers have an incentive to recruit staff with a higher education degree. Third, students have an incentive to acquire a college degree due to employers’ preferences for such qualifications, the university application procedures and through the growing social value placed on education. We develop a parsimonious dynamic model in which a student, a college and an employer repeatedly make decisions about requirement levels, performance and wage levels. Our model shows that if i) universities have the incentive to decrease entrance requirements, ii) employers are more likely to employ staff with a higher education degree and iii) all types of students enrol in colleges, the final grade will not necessarily induce weaker students to study more to catch up with more able students. In order to re-establish a quality-guarantee mechanism, entrance requirements should be set at a higher level. CEPS Working Documents are intended to give an indication of work being conducted within CEPS’ research programmes and to stimulate reactions from other experts in the field. The opinions expressed in this document are the sole responsibility of the authors and do not necessarily represent the official position of CEPS.