College Tuition Subsidies and Bilateral Uncertainty

This paper investigates why some U.S. colleges o er positive tuition subsidies while others do not. I develop a model in which students face uncertainty in the quality of education at a school and schools in the quality of students that attend the school. These uncertainties help explain why di erent tuition subsidies exist. An empirical investigation of 1115 U.S. colleges in 1994 shows that students typically underestimate the quality of education they receive and that schools typically overestimate the ability of students. JEL Classi cation: I21, D12