- College Quality and Tuition Subsidies in Equilibrium with Alvaro Cox [Job Market Paper]
In this paper, we study how demand-side subsidies interact with the equilibrium level of price and quality in the higher education sector in Brazil. More precisely, we consider two policies that assist low-income students in attending private institutions: scholarships and subsidized student loans. First, we develop a quality measure for undergraduate programs using value-added models, where a student’s post-graduation outcome is determined by their pre-enrollment characteristics. To do so, we link multiple administrative datasets to track individual students before enrollment, during college, and after college. We consider two post-graduation outcomes: a standardized “exit” exam, which tests students’ major-specific knowledge, and income from a matched employer-employee database. We document key patterns and correlations of our quality measure and extensively validate it. Next, we develop a static equilibrium model of demand, pricing, and quality provision. We consider two counterfactuals: decreasing the supply of loans by 10% and decreasing the supply of scholarships by 10%. We find similar patterns under both scenarios but much stronger effects for scholarships. Specifically, by lowering the supply of scholarships by 10% in each program across the country, there would be 13 thousand fewer students in college, corresponding to 80% of the total reduction in scholarships. Most programs would have an incentive to decrease quality and price, with a median change in value-added of -5% and of -0.7% in price.
Work in Progress
- Ownership Effect on Productivity and Investment: Water Utilities in Brazil with Rodrigo Naumann
Access to treated water and sanitation is essential for public health and economic development. However, many developing countries still face the challenge of serving a large fraction of their population. This project investigates how a water utility’s ownership type, i.e., private or public, affects its productivity and incentives for coverage expansion. First, we use a panel of municipalities to run an event-study analysis of municipalities who switched their operators from public to private. We find that switchers were substantially more diligent in charging customers as they sharply increased the number of meters and fraction of billed water. Moreover, municipalities that switched to private operators show a substantial increase in new connections to treated water networks but without a sizeable increase in average price. Next, we propose a production function model that incorporates the firm’s ownership type. In our model, we posit that utilities value a combination of profits and non-pecuniary benefits to rationalize their choice and allow such valuation to vary by ownership type. We also investigate how the ownership type affects the flexible input choices and unobserved productivity.