Rethinking the Welfare State: The prospects for ... - e-Library

Post-secondary education 181
whether inherent information asymmetries between consumers and suppliers of
university education require a role for the state in determining which institutions are
eligible to receive the ICL vouchers, and, if so, in what manner the state should vindicate
this role.
Traditionally, the state has played an important role in certifying universities, although
this role has changed in many jurisdictions as of late. The argument for intervention is
based on the inability of students (and their families) to ascertain the quality of a
university education ex ante because it is alleged to be an experience good, and the fear
that students will be unwittingly lured to institutions or programs whose educational
benefits (however defined) are not commensurate with the costs entailed. By establishing
clear criteria for recognition, the state will be able to bond the quality of institutions
operating in its jurisdiction, thereby attenuating the risks of disappointed student
expectations. Further, by ensuring that all institutions operating in a given jurisdiction
meet minimum quality standards, the risk of negative spillover effects arising from the
under-performance or failure of one institution to other institutions in the same
jurisdiction is attenuated.
Like all forms of industry entry regulation, the certification regime used to approve
new entrants into the field of university education is subject to abuse as a result of
pressure from incumbent suppliers who wish to restrict the level of local competition.
Although the objective function of the non-profit university is difficult to model, there is
little doubt that institutional stakeholders in incumbent institutions benefit from having a
stronger faculty and student base, and competitive entry risks the strength of their
franchise. These concerns are heightened when existing institutions are publicly funded
and regulated and, therefore, less able to respond to competitive threats than their private
peer group. Publicly funded institutions may also resist new entry because of the fear that
scarce public resources earmarked for public university education will ultimately be
distributed more broadly across the population of institutions. This concern is not without
a rational basis. Given the many advantages that incumbent public institutions have (in
terms of existing physical and reputational capital), new entrants and their prospective
students (and their taxpaying parents) will attempt to persuade the legislature to provide
at least a modicum of funding support for students who opt for programs in private
institutions.
It is our view that the normative case in favour of according the government a
significant role in regulating entry into the university market has never been strong, and
has been further weakened with the passage of time. As in the case of other experiencebased
goods, suppliers will find credible ways to signal their quality to prospective
students, and to overcome innate informational asymmetries. Institutions can (and do
routinely) disclose data respecting their student body, faculty quality, range of programs,
and placement rates to prospective students. These data, while not a perfect proxy for
institutional performance, are strongly indicative of it, particularly given the associational
benefits of university education. Collection, assimilation and assessment of this
information by credible third-party organizations (public or private) further attenuates the
existence of informational asymmetries between suppliers and consumers, especially
when their public assessments are enhanced by privately collected qualitative data.
Indeed, it can be argued that the level of private donations received by institutions (either
current or historic) constitutes another way of signaling institutional quality to