In a dynamic framework in which generations are linked by educational background, we identify an intergenerational externality that is larger for disadvantaged groups. This provides an argument for affirmative action in higher education based on efficiency alone.

Most industrial countries have traditionally subsidized the provision of higher education. Several alternative financing schemes, which rely on larger contributions from students, are being increasingly adopted. Schemes such as income contingent loans, like the Australian Higher Education...

We consider risk-averse individuals who differ in two characteristics - ability to benefit from education and inherited wealth - and analyze higher education participation under two alternative financing schemes - tax subsidy and (risk-sharing) income-contingent loans. With decreasing absolute...