Income, Ability, and the Demand for Higher Education. Discussion Paper No. 293-75.

This paper develops and estimates a model of college attendance that focuses on the influences of public policy and of economic environment. The Policy instruments examined are tuition, admissions requirements, college locations, breadth of curriculum, draft deferments, and class integration of neighborhoods. The aspects of the economic environment examined are the opportunity cost of the students' study time and the size of the anticipated earnings payoff to college graduates. The first five sections of the paper develop a theory of college attendance and then apply it to the choice and definition of variables and the seletion of functional form for the estimating equation. Section 1 examines the college entrance decision when unlimited borrowing is possible. Section 2 handles a more realistic situation. Section 3 applies this theory to the selection of the college. Section 4 examines how planning for college influences model specification and the selection of variables. Section 5 derives the functional form for estimation and describes how the estimated parameters will be used to test the hypotheses discussed in sections 1 and 2. Section 6 describes the data and section 7 presents the results. Section 8 analyzes the effectiveness of public subsidies of undergraduate education by calculating the subsidy cost of an extra student from each of the 20 ability-by-income strata and discusses the policy implication of the results. (Author/KE)