College Rating Systems and Higher Education Market Failures
This paper examines the Obama administration's proposed college rating system, which aims to evaluate institutions based on quality, affordability, and student outcomes. The analysis situates this policy within the broader context of market and government failures in higher education. The paper explores whether higher education functions as a public or private good, how government subsidies have contributed to rising tuition costs, and whether information asymmetry is the primary market failure. By assessing the college rating plan as a potential solution to these problems, the paper considers whether improved transparency can incentivize colleges to offer more affordable and higher-quality education.
- Introduction: The College Rating Plan: Obama administration proposes college ratings system
- Higher Education as Public and Private Good: Education exhibits both public and private characteristics
- Market Failures and Government Intervention: Subsidies and financial aid drive tuition inflation
- Information Asymmetry and Consumer Decision-Making: Students lack information to make optimal choices
- Policy Solution: The College Rating Plan: Ratings aim to correct information failures
- Conclusion: Market Failure vs. Government Failure: Plan's success depends on identifying root cause
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What makes this paper effective
- Situates a specific policy proposal within economic theory, grounding the discussion in concepts of public goods, market failure, and information asymmetry.
- Uses multiple academic sources to support competing explanations for rising tuition (government intervention versus information failure), avoiding oversimplification.
- Builds a logical progression from problem identification through policy analysis, allowing readers to follow the cost-benefit reasoning.
- Acknowledges the dual nature of education—both public and private good—to explain why multiple stakeholders view the problem differently.
Key academic technique demonstrated
The paper employs comparative policy analysis by weighing two competing causal explanations: government failure versus market failure. Rather than asserting one cause, the author uses this distinction to frame what the college rating plan can and cannot accomplish. This technique strengthens the conclusion by showing that the plan's effectiveness depends on identifying the root cause—a form of conditional reasoning common in economics and policy analysis.
Structure breakdown
The paper follows a problem-solution structure: (1) introduce the policy, (2) define the economic context (public/private goods), (3) diagnose failures (subsidies causing tuition inflation; information gaps), (4) explain the proposed fix, and (5) conclude with a key diagnostic question. Each section builds dependency on earlier reasoning, requiring readers to track whether higher education's market failure is primarily about underallocation, price signals, or knowledge gaps.
Introduction: The College Rating Plan
The Obama administration is attempting to create a rating system that will rate colleges based on their quality, affordability, and outcomes (Leonhardt, 2014). The goals of the program are to allow prospective students to compare colleges and to create an incentive for colleges to provide students with a good and affordable education (Leonhardt, 2014). The college-rating plan will measure the average net price of the college, completion rates, and graduates' earnings (Leonhardt, 2014).
In a time of increasing tuition prices, where college degrees remain necessary for economic prosperity, a rating system could create better information transparency and encourage stronger competition between colleges. By providing standardized metrics for quality, cost, and outcomes, such a system could help students make more informed decisions about their educational investments.
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