Robert Frank applies his Darwin Economy argument to the problem of high college tuition rates ("The Prestige Chase Is Raising College Costs") in today's NY Times.
Combine the fact that prestigious degrees help grads land lucrative jobs (and careers) with the fact that much of the world relies on signals (the college as a brand) and you get the rush to apply to prestige schools, helping to drive up their tution rates.
Frank wants federal aid to colleges to be tied to restraint on their tuition hikes. He also adds this punchline: "We might consider taking more direct aim at the component of tuition inflation that is attributable to growing salary gaps. Raising taxes on top salaries would be a good idea for Amercan society in general, and not just for higher education. It would not only shrink the effect of salary disparities but would also generate some much-needed revenue." Italics mine; I always find it weird when economists assert "needs." What happened to trade-offs?
What else is missing? The perceived possibility of upward mobility (and the rush to brand-name schools) is a wonderful thing. One does not stay on top (or reserve a spot at an Ivy college) as a matter of birthright anymore.
Colleges are in an arms race to provide amenities because there are enough affluent families able to encourage demands for these among their kids.
Markets are never perfect and Frank has certainly noticed that. But who fixes this? Frank wants better policy to replace the policies now in place. Does he think that the faulty tuition subsidy programs now in place came about via some oversight? Reform is a wonderful thing, but how would it come to pass? New and improved federal programs still come about the old fashioned way.
Inisting on federal involvement but wanting it to be "objective" is a little like want to have one's cake and eating it too.