An interesting article today in the New York Times reports that enrollment waiting lists at Universities in the United States are getting longer. Duke had a record 27,000 undergraduate applicants with its waiting list at 3,382. Reasons consist of uncertainties in the economy, which makes it difficult for Duke to estimate how many of those accepted will actually say yes. Most Ivy League schools are also hedging their bets… but so are students. In some instances they are applying to 15 or more schools. We definitely see an imperfect information problem here. Education is an example of a positive externality: acquiring more education benefits the individual student and having a more highly educated work force is good for the economy as a whole. Excess demand for education? Raise the price.
April 01, 2010, Harvard announced they had made the decision to auction off 100 seats in next year's freshman class to the highest bidders. I think this may solve some of the Universities problems with their budget shortfall. The people who value the seats the most, or have the highest willingness to pay will win. We think collusion is likely out of the question. Backward induction of game theory 101: if someone has an incentive to cheat, everyone will.
http://www.nytimes.com/2010/04/14/education/14waitlist.html?ref=todayspaper
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