The Effect of Market Integration on Public Higher Education
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This paper assesses the relationship between prices and market integration in public higher education. The analysis focuses on the effect of Tuition Reciprocity Agreements (TRAs) on in-state resident tuition and fees of 4-year public institutions. Those agreements, which lower tuition for out-of-state students, can be understood as market integration devices. Market integration through TRAs is analyzed under the framework of an in-state subsidized market where demand has now access to a bigger choice set of partially subsidized institutions, changing decisions towards higher expenditure and quality. Using longitudinal data, I present strong evidence that the market integration of TRAs sparked an increase in 4-year public institution in-state prices. The result holds for both selective and non-selective institutions. In the same line, the TRAs have also increased the faculty/student ratio among selective institutions. These findings rearm the idea that part of the increase of prices in higher education is explained by market integration, as suggested by Hoxby (1997).