Regulation in the Market for Education andOptimal Choice of Curriculum

We analyze educational institutions’ incentives to set up demanding or lax curricula induopolistic markets for education with endogenous enrolment of students. We assume thatthere is a positive externality of student achievement on the local economy. Comparingthe case of regulated tuition fees with an unregulated market, we identify the followinginefficiencies: Under regulated tuition fees schools will set up inefficiently lax curricula inan attempt to please low-quality students even if schools internalize some of the externality.On the other hand, unregulated schools set up excessively differentiated curricula in orderto relax competition in tuition fees. Deregulation gets more attractive if a larger fraction ofthe externality is internalized.