University Research and the Market for Higher Education

This paper develops a framework in which university research depends endogenously on competition for tuition and talented students in the market for higher education. When students are highly stratified across colleges, or when tuition rises sharply with school rank, universities spend on R&D even if the direct contribution of research to teaching is small. The model is consistent with causal evidence and matches new features of the microdata. It explains why universities internally fund research with tuition, despite negligible returns to patenting. Calibrated simulations suggest that existing tuition policies boost university research while research subsidies crowd it out. (JEL I22, I23, L24, O31, O34)