Concept of Market and Market Failure in Education

Concept of Market and Market Failure in Education
University Press Scholarship Online

Oxford Scholarship Online
Education and Economics: Disciplinary Evolution

and Policy Discourse
Saumen Chattopadhyay
Print publication date: 2012

Print ISBN-13: 9780198082255
Published to Oxford Scholarship Online: January 2013
DOI: 10.1093/acprof:oso/9780198082255.001.0001
Concept of Market and Market

Failure in Education
Saumen Chattopadhyay
DOI:10.1093/acprof:oso/9780198082255.003.0007
Abstract and Keywords
Education policy world over is increasingly being determined

within the framework of the neo-liberal approach, which
advocates setting up of a regulated market with a limited but
redefined role for the government. This chapter seeks to
deconstruct the myth of market mechanism for education. The
market for education fails on various counts to guarantee an
efficient allocation of resources and deliver quality education
through competition. Not only is the market an imperfect one
due to the differentiation in the quality of education, but also
the social demand for education remains largely unaddressed.
Since, the nature of competition in the market for education is
characterized by selection-based competition rather than
efficiency-based competition, promotion of market accentuates
differentiation among institutions and society.
Keywords: education, quasi-market, market failure, efficiency, equity,

competition, sovereignty
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This chapter initiates a discussion on policy issues based on

the discussion on aspects of education and economic theory
that we have had in the preceding chapters. In Chapter 6 we
discussed how different levels of education, when
characterized from an economic perspective, would have
implications for the nature and extent of government
intervention and private sector participation. However, if we
look at the entire gamut of policy reforms the world over in
the realm of education, we will observe an unmistakable
tendency to infuse market principles both at the economy level
to develop a national level education market as well as at the
institutional level to resort to governance reforms in line with
the functioning of a corporate entity. In this chapter we dwell
on the concept of market for education, particularly higher
education (HE) to understand the pros and cons of the
marketization of education. Policy initiatives are viewed as
corrective measures to restore the functioning of the market
as it is considered in the West and by the multilateral lending
agencies like the World Bank to be the best institution to
organize economic activities. However, we need to remind
ourselves from time to time about how the market for
education is different from the conventional understanding of
a market; to be precise; how does such a market differ from
the highly lauded perfectly competitive market structure. As
discussed (p.188) in Chapter 6, only in a perfectly competitive
market are all the efficiency conditions satisfied. If education
as a good (truly speaking, a service) is different from a typical
commodity and an educational institutional is different from a
firm as a manufacturing unit, we need to examine critically the
applicability of market principles in educational reforms in
view of the fact that policy reforms in education the world
over are informed by the logic of market under the
overarching framework of neo-liberalism.1 However, it
remains an imperative to distinguish among the three levels of
education.
We commence our discussion with the concept of market and

examine the validity of the assumptions underlying a perfectly
competitive market for education. We then discuss the sources
of market failure and possible cases of government
intervention. This is followed by a discussion on the concept of
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a quasi-market to set the stage for a critical appraisal of the

major policy initiatives being mooted and implemented both in
India as well in a majority of the developed countries in
subsequent chapters.
Market and Market Failure in Higher Education

Market as is generally understood in common parlance is an
institutional arrangement to facilitate transactions between
two sets of economic agents with conflicting objectives, the
consumers and the producers. For the market for education,
Patnaik (2007) raises a fundamental point about whether the
teaching-learning process in higher education can at all be
treated as a market. He pleads for an alternative conception of
higher education where ‘… higher education as an activity in
which students and teachers are jointly engaged on behalf of
the people of a society’ (Patnaik 2007: 3–4, emphasis original).
According to this view, the delivery of education takes place
with concern for and an awareness of the social context with a
complete relegation of market obsession in sharp contrast to
the narrow view in which higher education is viewed merely as
an instrument for earning a livelihood.
The convenient and conventional point for examining policy

issues is to understand the concept of a market. Market failure
arises (p.189) in the wake of the non-conformity of the market
to the assumptions for a perfectly competitive market as
discussed in Chapter 6. It is generally held that the
government should intervene if the market fails. The larger
case for public intervention rests on three cases (Musgrave
and Musgrave1989): (a) Allocation of resources, (b)
Macroeconomic stabilization, and (c) Redistribution of income.
For allocation which seeks to ensure that the market serves its
role, the task of the government is to correct market failure, or
even create a market where it does not exist. There are
generally four cases of market failure which entail government
intervention: (1) Competition is not perfect, (2) Generation of
externalities, (3) Information is not perfect, and (4) Markets
are incomplete.2 There can be additional dimensions of market
failure for knowledge as compared to education and
particularly with respect to higher education in the global
economy (see Marginson 2009b).
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The education market tends to be always imperfect because in

a way it violates the assumption that tradable goods and
services are homogeneous. Though particular types of degrees
are offered by many institutions, the degrees are actually
differentiated. The value of the degree depends on the brand
value of the institution. This means the quality of institutions
will determine the quality of the degrees and quality would
vary because of the wide variation in the quality of human
capital, students and the teachers, involved in the process and
also in the infrastructure facilities provided. Case 2 is a classic
case of market failure. Primary education is a merit good and
higher education (HE) is argued to be a mixed good, or, a
quasi-public good. Case 3 is Information asymmetry which
requires the government to intervene and safeguards
measures to address grievances which may require setting up
of a Tribunal. In Case 4 the education loan market is imperfect
in the absence of collaterals.
Under restrictive assumptions,3 perfect competition

guarantees fulfilment of Pareto efficiency conditions implying
the efficient allocation of resources. However, given the
inequality in initial distribution of resources, the concern for
equitable distribution of resources (p.190) remains
unaddressed in a typical market. The concern for equity in
terms of effecting an equitable distribution of resources
remains largely unaddressed in a typical market. In general,
since a market fosters a competitive ambience among the
participants, it paves the way for improving the quality of the
product to be delivered at a competitive price. Imperfect
competition is considered to be a case for market failure as
the Pareto efficiency conditions are not satisfied. In case of
higher education, the advocates of a market argue for
differentiated products to ensure that the consumers
(students/parents) can choose from a wide variety of products
(Bridges and Jonathan 2003: 135). Hence, the concept of
perfect competition loses its relevance in our context.
To reconcile the objective function of universities and the

nature of competition we may refer to Marginson (2004: 178–
87) who argues that the market for higher education is
essentially a competition for social status (social advantage,
social position) or as he says, a market organized as a ‘status
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competition’, where the institutions play a key role in the

production and allocation of social status.
Information Asymmetry
As discussed earlier, education is in the nature of a service
and often referred to as an experience good. The quality of
education can only be judged through participation in the
process and its relevance over a period of time. Education is
essentially a package of services which involves dedication of
time over a long period with uncertain future payoffs. The
process involved in imparting education is complicated and
the instructional process is built over time which renders
schooling hardly comprehensible to students and parents,
making comparisons among the institutions difficult (Plank
and Davis 2010: 301). At the time of enrolment in an
institution, it is difficult for students and parents to ascertain
the quality of education and take an appropriate decision
though the students and the parents would always try to
gather the necessary information from the brochure prepared
by an institution, its website, reputation which is formed on
the basis of the assessment made by senior students who are
still studying there and those who have left, and the ranking of
the institution if available. Notwithstanding, experience is
personal and the institution may (p.191) have a tendency to
hide information and even mislead students. This tendency
depends on the nature of the management of the institution
and its objective and character and it can be argued that such
a tendency is more prevalent among privately managed
institutions. This is a source of market failure in the education
market as choice of courses and the institutions get distorted
(Teixeira et al. 2004a, etc.). One way to overcome this problem
of information asymmetry is to regulate the education system
with the purpose of standardization in teacher recruitment,
curricula, and equalization of funding across the schools
(Brown 1992, as quoted in Plank and Davis 2010). Schools
through absorption of risk, provide insurance to students and
parents who are uncertain about their children’s abilities and
future returns. Government schools occupy a larger space in
the delivery of education and take the lead in setting up the
curricula for the private schools to adopt. The second option
for the state is to make sure that correct information is made
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available to students and parents through publication of

brochures and maintaining websites containing data with
regard to schools’ performances and other relevant facts.
The Case of Adverse Selection and Moral Hazard

The case of adverse selection may arise when, for example, in
response to poor quality education in government schools,
students who can afford to pay high fees in private schools
leave government schools. Those who are left behind suffer as
the quality of education gets adversely affected due to lack of
monitoring and reduced involvement of parents in the
functioning of schools. Students who continue with
government schools feel demoralized and have to remain
contended perforce with inferior quality education (Hillman
2009: 604). This is an example of the adverse selection that
private schools bring about in the education market with
adverse implications for equalization of educational
opportunities.
The problem of a ‘moral hazard occurs when the presence of

insurance affects personal decisions in ways that make
personal benefit from insurance more likely’ (Hillman 2009:
627). People would develop a tendency to put in lesser effort
for their own (p.192) advantage by exploiting the available
insurance scheme. In the absence of proper monitoring of
students, teachers can change their behaviour and put in
lesser effort at the expense of a good quality teaching-learning
process. The borrowers of education loans can also change
their behaviour which may affect their success with a possible
dent on the prospect of getting a job and remaining solvent.
Knowledge and the Failure of the Market

Since knowledge is more like a public good as discussed in
Chapters 3 and 6, market fails in the sense that knowledge
production will always remain sub-optimal in the absence of
government intervention. While it is argued that knowledge is
best created under the forces of a market and hence it is
patented, knowledge becomes a victim of the market as well.
The market fails in many respects to deal with knowledge and

production. Engagement in creativity is a risky affair with
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uncertainty continuing to haunt investors. Often the private

sector is not capable of taking risks and investing in
knowledge creation whereas the public sector can take risks
as it is not unduly concerned with return from investment in
knowledge generation. So, though the market provides
incentives, the issue is what kind of incentives. The possibility
remains that market forces will determine a research agenda
which is often not in the best interest of society. Market forces
are also often not reliable for giving direction to undertake
research in a completely uncharted area. In the realm of the
market sphere, if profits become paramount, the market fails
to capture risks and in the needs of an unequal society, the
public sector is often required to bypass market forces and
take a lead role in funding science and research.
This source of market failure can also be looked at from a

different angle. Investment in knowledge takes place in the
absence of perfect information particularly about the future
(Aranson 1995). Dedication of resources to generate
knowledge is tantamount to investment in knowledge. But the
relationships between the choices available and profits
(outcome) which are expected to (p.193) follow are non-
transparent, uncertain, or unknown. Risk aversion may further
lead to suboptimal allocation of resources to research as the
risk-averse investor will look forward to a higher rate of
return. If the scale of investment required is far too high,
there will often be a lukewarm response to investing by a
government in a particular period.
Since knowledge defies the economic law of scarcity, the

economics of knowledge poses difficulty particularly for
economists. It shares many of the features of a global public
good. In view of this, the government has a greater role to
play in protecting intellectual property rights in the present
age as compared to the industrial age.
One disturbing feature of the emerging global economy is the

growing polarization of the world with respect to income
caused largely by the emerging knowledge economy. As per
the Solow’s model of growth, if nations are subject to market
forces, they will tend to converge which defies the present
scenario.4 The countries will achieve two peaks, one at high
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growth and the other at low growth. Growth of the knowledge

economy is attributable to increase in knowledge intensity of
economic activities and globalization of economic affairs.
The market can be inimical to particular types of knowledge

owing to the intrinsic manner in which the market economy
functions. As Kenway et al. (2006) explain knowledge is
measured according to a common scale in terms of the
commodity exchange value. Creativity is defined in terms of
scientific and technological innovation. Knowledge is further
standardized, codified, or digitalized which can be transmitted
through computer technology in the market. The fallout of this
is that any kind of knowledge which is not amenable to market
processes will remain at the periphery or even be relegated,
leading to a diminution in its importance irrespective of the
need of society. The use of knowledge under capitalism is in
terms of an improvement in economic efficiency and profit
enhancement. This process of legitimation is likely to exclude
typically cultural and aesthetic economies if they are not
instrumental in the advancement of capitalism. Capitalism is
primarily driven by knowledge which can be used for
advancement of (p.194) capitalism through cheapening of
prices and quality. Here lies the danger that the market may
assume so much of dominance that it can define the rules,
norms, and values of these knowledge economies. If the desire
of the consumer has to be incessantly satisfied, a continuous
process of innovation has to be sustained to bring new
products in the market. As a product is used for a period of
time, the satisfaction of the consumer diminishes as the
process ceases to be a sought after one, which is described as
aesthetic obsolescence (Kenway et al. 2006). It often leads to a
rapid turnover of style and fashion. The rise to the dominance
of market logic has led to the disappearance of certain arts
and disciplinary knowledge.5 There is a world out there in the
realm of arts and literature which arises out of our penchant,
our desire for creation. Kenway et al. (2006) characterize it as
a libidinal economy. Creation in the forms of art and culture
responds to what is demanded in the market.
A related aspect of the power of destruction of the knowledge

economy is located in the interface between a globalizing
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market and indigenous knowledge. Many traditional

economies have also contributed to the process of knowledge
generation in the way in which they have managed the
survival of their economies without coming into contact with
the market economy. The modern concept of knowledge is
narrowly defined in the realm of modernization in the West.
Bio-prospecting, the patenting nature, and trade related
intellectual property rights are the spheres of research
activities where the market can be exploitative. The modern
economic theory is argued to be incompetent to deal with
nature in general. Raising the status of market theoretically
and subjugation of policymaking to the market as the ‘highest
organizing principle of society’ can mean disaster for nature,
in particular for ‘survival economies’. Survival economies use
indigenous technology and bank on natural ecological cycles
which are outside the realm of the market. Shiva (1991)
argues that it is a western concept to equate science and
technology with modernity and westernization. Biological
resources are transferred from primitive economies located
mainly in the third world to the first world which can be
construed as a transfer from colonies to the centres of
imperial power leading to (p.195) the eventual displacement
of local biodiversity in the colonies by monocultures of raw
materials. This process is described as bio-imperialism which
has assumed a new shape in this age of biology. Life sciences
relate to our daily existence in numerous ways starting with
food, health products, medicine, and the environment.
Biotechnology or biomedical technology is now being touted as
the new wave of technology. The survival economy is exposed
to the knowledge economy as knowledge is patented and
privatized through various related notions of licensing,
copyright, and trademarks. Genetic and other material are
pirated and patented by certain areas of biotechnology which
were earlier used by the people for their day to day use.
Patenting allows companies to claim exclusive rights to
produce and sell modified plants and animals. It can be
considered to be a double theft, as first it allows a theft of
creativity and innovation and second it claims exclusive rights
established by patents on the stolen knowledge. Over time,
these have the potentials to create monopolies and make
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everyday products highly priced (Kenway et al. 2006 quote

Shiva 1991).
Knowledge can give rise to increasing returns to scale which

are likely to undermine competition for large network
externalities and create forms of monopoly capitalism (Olssen
and Peters2005). This has the potential to become a threat at
the international level as competition is suppressed and
monopoly profits are reaped. Microsoft is an example of this.
Marginson et al. (2010) add a new dimension to situate

knowledge and market failure in the emerging form of the
global knowledge economy. Knowledge is essentially a public
good, non-rivalrous, and non-excludable because once it is
created it is available in the public domain as a public good.
This distinction between the creator of knowledge as
embodied in a human being as human capital and her creation
of knowledge which is non-rival in the form of ideas came out
sharply in Chapter 3 in the context of our discussion of how
knowledge and human capital are incorporated in the growth
models (Romer 1990). Private goods created in elite
institutions in the nature of the value of the degree certificate
and status acquired because of networking benefits in (p.196)
elite institutions are of value owing to the richness and rigour

of the knowledge content of learning which contributes to the
status of elite institutions and the degrees that they confer. In
a way therefore the ‘…acquisition of the private goods
depends on the simultaneous production of the public
knowledge goods inherent in student learning’ (Marginson
2010b: 142). At a broader level, ‘publicness’ in the provision of
knowledge and research training continue to create a sound
base for future production of knowledge and innovations. If
the market were indeed dominant, the base of knowledge as
available for the growth of various sectors would have been
weaker and poor.
Because of the hierarchical nature that exists in the quality of

higher education institutions (HIEs) as both elite and diploma
mills continue to produce certificates of value and mere pieces
of papers, the economic character of production remains
limited. What makes this market distinguishable from other
markets where both good and bad products sell, is often the
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rejection of these pieces of paper by the industry resulting in

graduates being unemployed and/or acceptance of a lower
than expected job profile by graduates of diploma mills
(Marginson 2010b).
The rise in the network of open source associations in the

production of knowledge and their synchronous functioning
defy the neo-liberal imaginary of market based knowledge
production (ibid.). The rise in instances of cross-border
cooperation in knowledge production has also undermined the
idea of a closed national market as the international ranking of
universities situate national quality vis-à-vis the international
level. The concept of freedom in the neo-liberal construct is
one of negative freedom, freedom from constraints whereas
the concept of positive freedom which is the capacity for self-
determining action is undermined in the market-based theory
of choice making.6
Market Failure: Imperfect Capital Market

Potential for market failure is as much in primary education as
in higher education. In the former, even the parents who
emerge as decision-makers for these school-going students are
not always in a (p.197) position to comprehend fully the
benefits of education. However, investments in education
continue to be risky (Hillman 2009; Lleras 2004) from the
perspective of an individual on account of the following
factors.
Students may not be able to assess the likely benefits of higher

education in terms of higher pay packages and other non-
monetary benefits. While uncertainty associated with the
future stream of earnings is true for any investment, the
problem is accentuated for a developing economy with limited
job prospects and more for students hailing from economically
challenged backgrounds. Drop-outs may also be on the higher
side because of the long gestation period and other
uncertainties of life. Because of skill obsolescence, need for
sustained reinvestment due to changing skill requirements in
the job market, and continuous technological development,
individuals are required to reinvest in education to remain
competitive in the market.
Page 11 of 31
The other problem is that of illiquid investment. This problem

arises because human capital cannot be construed to be
collateral as it is not tradable unlike in the case of housing and
car financing since a student cannot dispose off the PV of
future incomes. This leads to the problem of absence of
collateral in education loans.
From the perspective of a lender, asymmetric information and

difficulty in collecting payments may be a deterrent. The
problem of asymmetric information arises because lenders
may know little about the ability of the students seeking loans,
their ambitions, and intended career paths. This leads to the
associated problem of adverse selection because it
discriminates against students from economically challenged
sections of society. If premiums are charged, mediocre
students may hesitate as some students with confidence and
potential take the plunge. As the possibility of getting good
jobs declines for mediocre students, failure rates rise forcing
lenders to charge a still higher premium. High mobility of
students, particularly for those going abroad, poses a difficulty
for lenders of tracing defaulters and ensuring recovery. All
this put together make a lender wary of giving loans to
students irrespective of their socio-economic backgrounds and
choice of streams.
(p.198) Market for Higher Education is Hierarchical

When we extol the virtues of a competitive market, the
pertinent question is whether competition in a market for
higher education will usher in quality improvement and some
movement towards homogenization through the price
mechanism. In higher education, quality depends on the
quality of students and teachers and their commitment to
excel. Since pricing in the public higher education system is
hardly based on cost (as reflected in the supply curve) and
demand, the role of price is drastically curbed and whatever
role it plays in the private sector its nature is somewhat
different compared to the conventional market because of the
complications associated with tuition fees, capitation fees, and
regulation. However, price is determined based on financial
aid or donations and the extent of cost recovery as decided by
the management of institutions and quality of education
imparted as it depends on the quality of infrastructure and
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human capital. As Marginson (2009a: 208) argues essentially

universities are engaged in status competition characterized
by the ‘winner-takes-all-markets’ or, in other words, the
positional market is a zero-sum game. As non-profit
universities pursue maximizing their profits and output (or
revenue), an improvement in position is associated with a
commensurate improvement in the financial position. Scarcity
of seats and the related issue of unequal social opportunity in
education render this education market different as
universities do not really care to meet the entire demand and
let the value plummet along with the status. It is a competition
where price does not feature prominently in the scheme of the
universities. Reputed institutions attract more funds in a
scenario of competitive funding and more endowments from
reputed alumni as they come forward to donate and form a
network, which enables these institutions to offer more
scholarships and lower fees to attract good students. Similarly
they attract the best minds to teach and to do research
(Winston 1999). As a consequence, the top institutions remain
at the top and the mediocre ones are at the middle and the
not-so-good ones are at the bottom. In a similar vein, Bok
argues (2003: 104): ‘In higher education, the cards are
stacked against any institution that lacks (p.199) an
established reputation and money.’ In the context of the US,
he argues that ‘In all these ways the strongest universities
tend to perpetuate themselves almost automatically. Success
begets more success, which helps to explain why the list of
top-rated universities in 2000 looks remarkably like a similar
list in 1950 or even 1900’. This makes the higher education
market intrinsically hierarchical to a large extent. So the
extent by which competition can be conducive for quality
improvement remains limited with no major shuffling of
university rankings year after year. Since the ‘low-status
institutions are condemned to remain in the bargain
basement’ (Marginson 2009a: 209) it could be argued that
investment in these low-ranking institutions ‘it more like
investment in human capital as the economist imagines it, in
that the screening and positional functioning are
diminished’ (Marginson ibid.).
Extending the argument a little further, Bridges and Jonathan

(2003: 135) argue:
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The trouble is, however, that market conditions contain

several dynamics which create first differences of quality
(and not just of character) and then unequal access to
the best. First, it is evident that in market conditions
success breeds success and failure just as surely breeds
failure. Early achievement encourages custom, which
brings additional resources and commitment, which
enables further success, and so on: early failure opens
the way to a precipitous drop down a less virtuous circle.
Thus the very rationale for infusing the market in higher

education should be subject to close scrutiny.
Market is Inherently an Unequal Sphere

Though market as an institutional arrangement is neutral and
provides equal opportunities to all in the normative sense, in
practice it accentuates inequality as all the participants are
not equally placed in terms of command over resources and
what Hogan (1997) argued ‘market capacities’ to participate
in the market. ‘Market capacities’ include ‘informational
resources’, various elements of social and cultural capital in
terms of education and networks among many other factors.
Those who are left out of the market become the (p.200) worst
sufferers. For education it is a serious problem as education is
akin more to an investment good than a consumption good and
therefore denial of good education incapacitates an individual
for life to live with dignity, and in the process it hinders social
mobility. For this, higher education has gained importance in
people’s agenda without there being any diminution in the
importance associated with school education as investment in
these two levels of education are not competitive but
sequential and complementary in nature.
Educational markets, as Hogan (1997: 135) argues:
… are not just mechanisms that record and aggregate

ontologically prior preferences. Rather, markets are
structures of power organized around a system of social
(specifically, class) relations that ‘structure’ social action
in determinate ways in which the possession of certain
attributes or ‘market capacities’ advantages some
individuals and groups relative to others.
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Marginson (2004: 186) argues that some students gain in the

job market and in society by virtue of being the alumini of top-
ranking institutions, at the same time other students from low-
ranked institutions incur a loss. So, the ‘positional
competition’ renders the job market a zero-sum game. What is
more interesting is that both types of status goods, the
individualized status of students and the institutional status of
the universities are co-produced by students and the
university as they, the students and the universities, stand to
gain from each other.
Market and Social Values

Market, it is argued, fails to respect social ethos and
community feeling. The problem becomes serious in case of a
social good like education. Individual choices with respect to
social goods are not fully rational as the choices may interfere
with larger social goals (Bridges and Jonathan 2003: 135–6). In
the sphere of the market, individuals take decisions to secure
maximum ‘individual positional advantage’, but education
bestows positional advantage only at the expense of others in
society (Marginson 2004). It is heartening (p.201) to note that
it often suits parents to have unequally distributed educational
provisions as long as they are better placed in society to
extract a good deal for their children. In the process, the non-
positional advantages are assigned less priority.
Values associated with community living like compassion and

benevolence are degraded as competitiveness tends to occupy
a larger space in the most crucial sphere of our making of life,
education, where we learn, appreciate, and inculcate values so
essential for maintaining the fabric of society. But markets are
essentially guided by narrow interests as market participants
become impersonal and cooperation vacates space for
competition (Olssen 1996: 341–2). However, Stephen Ball
argues that the advocates of competition regard the market as
value-neutral. If not, the market mechanism is more efficient
or responsive or effective for the delivery of education ‘…as
possessing a set of positive moral values in its own right—
effort, thrift, self-reliance, independence and risk-taking, what
is called “virtuous self-interest”’. In this latter view, market is
‘… a transformational force that carries and disseminates its
own values’ (Ball 2007: 12).
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Preference, Choice, and Endowments

Hogan (1997) deconstructs the underlying assumptions of the
demand curve and the market logic beautifully in the context
of education. There are two major strands in the argument:
one the assumption that preferences are exogenous to the
market. But in practice, the manner in which choices are made
by a consumer defy the assumptions. Two, the market is
embedded in the economy and the economy is embedded in
society, thus the market is primarily a social institution.
Endogenous Preference Formation

In neo-classical economic theory, preferences are formed
exogenously outside the realm of activity.7 However, in reality
this is hardly tenable. Educational aspirations are adapted to
existing opportunities; tastes are not exogenous and,
accidentally determined but are socially determined and
interdependent. Preferences are socially (p.202) constructed
and mutually determining. The standard assumptions of the
neo-classical theory of preference formation are deficient in
the sense that they are unable to establish the link between
action and preference function.
Economics transcend historical and institutional variations.

Choice is socially embedded and there is a need to recognize
the prevalence of systematic information asymmetries. In the
education market, there exists variability across groups, the
kind of information available, and its subsequent processing.
Educational aspirations are adapted to existing or anticipated
opportunities. Interdependencies in the society, formation of
taste, and the intensity of status competition are socially
determined. Therefore, as Hogan (1997) argues that
preferences are produced endogenously. The assumption that
factor endowments are exogenous for consumers in the sphere
of the market is highly questionable. Pareto is compatible with
any distribution of factor endowments. This apparently benign
assumption does not really capture the real world. In fact it
can be misleading.8 There are six reasons for this (Hogan
1997):
1. Market capacities other than land, labour, and

capital need to be considered. Other than wealth, the
narrowly defined exogenous factor endowment, labour
Page 16 of 31
market skills, credentials, cultural capital, information,

and social capital are derived from families, schools,
and the neighbourhood. Family and school transfer
capacities to successive generations and help facilitate
their ability to accumulate.
2. The actor is rational, consistent, self-interested, and
utility maximizing. The actor is also asocial, amoral,
classless, raceless, genderless, ageless, transcultural,
and transhistorical and therefore, the individual is an
abstract individual. Individuals are socially constitutive
and embedded within the social economy and the social
economy is structured by social relations and market
processes.
3. Choices in education are not akin to consumption but
investments and they are lumpy, in fact, super lumpy in
nature. Choices once made are not easily alterable.
(p.203) A choice once made has its own long term
multiplier effects with implications for the economic

and social well being of adults. Specifically, it can
determine schooling, occupation, spouse, and how in
turn the next generation will shape up. Educational
choices are mere reflections in investments in human
capital, social capital, cultural property, and
competitive advantage that they will eventually
command.
4. An individual is viewed as self interested and
engaged in constrained maximization. However,
sociability, non-self interested motives, sympathy, trust,
commitment, cooperation, loyalty, etc., can be the
factors which can influence decision making and choice
in sharp contrast to the self-interest motive which is
regarded as the sole determining factor in choice
making in mainstream economics. This indicates that
culture constitutes utility.
5. The market is embedded in the social structure.
Information and influence, exercise of power, networks,
and choice sets are constituted by opportunity and the
nature of resources. Parental choice involves
sophistication and understanding to make informed
decisions. Social reproduction takes place in a class
divided society.
Page 17 of 31
6. Markets are political constructions of distribution of

economic, social, and cultural power.
Educational choices are affected by resources and capacities

and market structured opportunity sets where resources and
capacities are determined by social structure, family
structure, exercise of state power, and market processes. The
market is structured around a system of relations where its
capacities and resources are unequally distributed. Thus, it
develops an inherent tendency to reproduce the prevailing
social order.
Quasi-market for Higher Education

There are two concepts of efficiencies, exchange efficiency
and productive efficiency, which are allocative and technical in
nature.
(p.204) Policy initiatives in countries like the United Kingdom

and New Zealand have sought to simulate a market like
situation in education essentially to uphold consumer
sovereignty by giving more discretionary powers to students/
parents to choose their providers. This type of market is called
a quasi-market as though some of the essential elements of a
typical market are injected into the system like elements of
competition, user charges, individual responsibilities, and
freedom of choice (Teixeira et al. 2004a: 3–4), at the same time
education continues to be subsidized and its provision
regulated. Competition is generally infused with the purpose
of improving the quality of schooling through a mechanism
which entails financial empowerment of students/parents to
exercise their choice effectively. In addition, this requires
competitive funding, or ‘user-pays’ or ‘per capita’ funding9 to
put pressure on institutions/universities to design courses and
programmes to respond to students’ demands, as funding is
encouraged to follow the students (Glennerster 1991) rather
than giving directly to the institutions. This generates
competition among institutions and also among different
disciplines within the institutions to set their fee levels in
relation to cost and service. An attempt to promote the use of
vouchers in school education is made in the same spirit of
Page 18 of 31
giving freedom to students and parents to choose the right

school and the right course that they want to pursue.
State and the Market Interface

For policymakers, an important question is how authority
relations in post-secondary education or higher education in
terms of the relation among the state, the market, and the
institutional leadership be structured? The relationships
among the three are being challenged by stakeholders and are
also being transformed to arrive at an ideal relationship.
Related with this is the question of the autonomy that an
institution should exercise and the important issue of
institutional governance. While autonomy is often considered
to be a pre-requisite for achieving academic excellence and a
turnaround of the system, to what extent we can give
autonomy to institutions in practice and how it can be blended
with accountability are pertinent questions. If institutions do
not have financial autonomy (p.205) and they are supposed to
conform to some basic norms for the interests of society as
decided by the government, autonomy would get substantially
curtailed.
Studies on institutional organizations have long been of

research interest not only for scholars from the discipline of
economics, but also for those from sociology. Smith, Weber,
and Veblen have all talked about authority and governance in
the context of academic institutions. Constructs such as
culture, stratification, habitus, and the role of professionals
have also been the areas of research (Pusser 2008).
Burton Clark’s work on the ‘triangle of coordination’ with

academic oligarchs (faculty or institutional leaders, boards, or
ministries), state, and the market could be a useful model to
study authority relations (Pusser 2008: 106–9). Essentially the
attempt will be to focus on the fusion of the state and the
market where at one extreme will be the state controlled one
and at the other extreme the system will be based on
‘dependence on exchange’, a system of non-governmental and
non-regulation. A third dimension is added with the
emergence of education ministries, boards, or even powerful
academics. The US is a market controlled system. Institutional
markets are sites for competition among institutions for
Page 19 of 31
prestige and resources as mediated by the state and the

market. Transformations are taking place as students emerge
as consumers, both because of their size and consumption
patterns. Allocation of resources and the enforcement of
regulatory constraints have been the traditional roles of the
state. Teixeira et al. (2004a) provide a different way of looking
at the higher education system by characterizing the student-
institution interface with the extent of freedom that students
and providers enjoy.
Institutions are also political where public costs and benefits

are allocated as the policies and instruments are to be seen in
the broader context of socio-political contests over social
reforms and other forms of activism.
We can identify three key areas of interaction between the

state and higher education: (1) grants and subsidies; (2)
regulation of the activities; and (3) promotion of access and
opportunity. One way of viewing the state and the HE system
as a regime is a series of networks that exist at various levels
which are duly legitimated (p.206) and financially supported
by state resources. The state and the market are envisaged as
fragmented with various disciplines and areas of research and
academic functions. The HE system is viewed as a market
because of consumers’ role, for-profit institutions, and
entrepreneurial universities. Smith, Marshall, Mill, and
Friedman have all commented on the role of the state in
education. Smith argued that since education for the poor
generate social benefits; the government should support it
(Smith 1976, Vol. II: 309 as quoted in Stabile 2007: 39).
Similarly Marshall recognized the benefit of spending on
education for the masses to help them realize their full
potential as he puts it brilliantly,
“All that is spent during many years in opening the

means of higher education to the masses would be well
paid for if it called out one more Newton or Darwin,
Shakespeare or Beethoven” (Marshall 1890/1920: 180).
Mill favoured government regulation for achieving academic

excellence (Mill 1969, as quoted in Stabile 2007: 65). Public
funded universities should compete with the privately funded
Page 20 of 31
universities otherwise the academic standard may witness

decline. Friedman (1962) argued in favour of giving choice to
the parents to choose schools they desire. Subsidy should be
given directly to the individuals to foster competition between
the public and private schools.
Features of the Market

The features of a market can be characterized in terms of
freedom that the two broad sets of economic agents,
consumers and providers enjoy, that is, consumer and
producer sovereignty. We follow Jongbloed (2004) to specify
eight such features of a higher education market which
revolve around the hallmark of a freely competitive market,
the freedom which is the most valued aspect in a competitive
market economy. Consumers-students and providers-
institutions have four types of freedoms which are discussed to
shed light on their desirability in a market for higher
education and the extent of marketization.
(p.207) Four Freedoms for Consumers

Freedom which can be enjoyed by students and parents at the
time of purchase in the education market can be classified into
four categories. Similarly education providers can also be
envisaged to have freedom in four crucial areas a la students.
An analysis of the freedom will help in characterizing and
understanding the nature and the structure of the market and
the interface between students and providers.
Freedom to Choose the Provider

In the case of the higher education market, should a student
have the freedom to choose the institution just as a consumer
can choose the seller/producer in a market for consumption
goods? The issue is therefore one of desirability of such a
feature for a market in higher education.
In neo-liberal theory, the notion of choice is derived from

consumer demand which should not be confused with social
need (Olssen et al. 2004: 179). Since freedom to choose
depends primarily on command over resources and ‘market
capacities’, any student with adequate resources will gain
access to an institution of her choice and not necessarily the
most deserving one. Markets do not conform to a model of
Page 21 of 31
equality of opportunity as neo-liberals ignore inherent power

inequalities due to unequal distribution of purchasing power
and ‘market capacities’. Moreover, Majumdar (1983) draws
attention to the potential conflict between the equilibrium: at
micro and the macro sphere; in short term and the long term.
Students form their preferences on the basis of their expected
profile of future incomes which may not materialise as on the
macro level, as there may be millions of individuals making
such choices and thus affecting the demand and supply
conditions, which can lead to a totally different outcome
compared to the micro level expectations.10
But does the market function? If the producers’

responsiveness to the demands of customers under the profit
motive in a competitive situation is desirable, Bok (2003: 162)
argues that three conditions are to be fulfilled. One, students
know what they really need; (p.208) two, they can evaluate
alternatives; and three, their preferences correspond to the
needs of society as one important objective of education is to
prepare students for contributing effectively to common
welfare. In the presence of information asymmetry and
education being an ‘experience good’, fulfilment of the first of
the two conditions is difficult. Generally institutions are
ranked and getting admission to institutions higher in the
pecking order becomes increasingly difficult. Since merit
should be assigned more importance than money power,
freedom to choose providers in the case of higher education
should be backed by merit to encourage the pursuit for
excellence. Effectively, since education is a ‘positional good’
and both students and universities compete for social status,
institutions and students choose each other (Marginson 2004)
as social status is jointly produced. However, the quota regime
tends to negate this and for a good reason.
If freedom is empowered by money, higher education will lose

much of its ‘positional value’ and, essentially, the degree
becomes available for sale. The process that students engage
in to get enrolled in top institutions as top institutions are like
‘brands’ and command prestige in the job market, generates
competition as the students bring the best out of themselves.
In essence, hierarchy has its merit of keeping competition
alive. However, freedom for students to choose providers may
Page 22 of 31
lead to delivery of quality education through competition

among the providers as they compete to select the best
students. Financial empowerment through education loans is
not of much help as the very process of sanctioning loans is
infused with several forms of discrimination.11
As Olssen et al. (2004: 208) summarize aptly the consequences

of using the principle of applying consumer sovereignty on
wider scale in various spheres of an education market as
follows:
they protect privilege; they deny all students equal

access to education; they deny all students exposure to
alternative perspectives; they limit community’s
progress as a democratic community, and they
undermine the basis of its integration, socially and
politically.
(p.209) Freedom to Choose a Product

Freedom to choose a provider and a product are often linked
as these depend on a student’s decision as to whether the
institution or the stream/discipline should get priority. If a
student is driven entirely by market logic, she will consider
whether it is the reputation of an institution as a ‘brand’ that
matters or is it the course which sells more in the job market.
It is also possible that a student may keep aside the question
of market demand and would like to opt for a course or opt for
an institution of her choice. Either a student chooses her
product first and then she looks for the relevant institution or
she chooses the institution first and then opts for the course
offered by the chosen institution. In both the cases, her merit
will restrict her choice set. The option to exercise the freedom
to choose a provider arises in the case of top institutions
followed by the choice of course or discipline. For professional
courses, the freedom to choose a course/discipline comes first
and not the institutions other than the top ranking ones.
However, general courses offered even by top institutions are
assigned very little value in a market where a particular skill is
valued. The dominance of freedom to choose a product over
the freedom to choose a provider explains partly the
mushrooming of private institutions of little repute offering
Page 23 of 31
market-oriented professional courses in view of the high

demand for these courses.
Often a course or a specialization requires a certain aptitude

or some specific skill. Ideally every student should be allowed
to choose the course/discipline she wants to study, subject of
course to merit and aptitude. A student seeking admission in a
medical college should have merit as well as aptitude and her
parents’ income should not count. If money power counts,
society stands to suffer as trust and credibility of a skilled
person like a doctor in this case is at stake. In India, though
charging of capitation12 fee is banned, it is a widely known
secret now. Applying the same logic as before one can argue
that if freedom is backed by the power of money, education is
degraded to a commodity with serious consequences as merit
is devalued and the poor get crowded out from the market.
(p.210) Adequate Information on Prices and Quality

One important assumption of a meaningful and efficient
market exchange is availability of adequate information to
enable a consumer (or a student) to participate in the market
(Dill and Soo 2004; Massy 2004; Olssen 1996). Competition
need not yield optimal results in higher education because
information asymmetry distorts students’ choice as they are
unable to weigh and evaluate the programmes offered by
institutions. The ranking or the reputation of an institution
matters in making informed choices but not always. In India
where a majority of the institutions are not even assessed and
accredited, lesser known private institutions often take
gullible students for a ride particularly in the absence of
monitoring by an alert regulatory authority.13
In view of the wide prevalence of an information asymmetry in

the private education market, there is therefore a sound case
for regulation on entry and monitoring of quality by an
independent regulatory authority.
Direct and Cost-covering Prices

In a competitive market in the absence of subsidization, prices
should be cost recovering. However, for the higher education
market, when subsidization of higher education is
indisputable, the issue is to what extent should the price be
Page 24 of 31
cost recovering, Ideally, the extent of subsidization will

depend on the precise measure of positive externalities.
Further, provision of higher education should be guided more
by social demand rather than by market demand. As discussed
earlier, the concept of cost minimization is not tenable as
better quality education costs more. For government aided
institutions, the price is generally subsidized other than for
self-financing courses, and hence price is determined mainly
by the institution rather than by cost.
For the private sector there is some regulation over price but
there are cases where non-resident Indian seats and
management quota are sold at a market determined (illegal)
capitation fee to a desperate lot. Capitation fee reflects super-
normal profit. Education being akin to investment and desired
by all, its price should (p.211) not be determined by its cost as
those who cannot afford to pay will be left out of the market
bypassing merit in the process.
Four Freedoms for Providers

As pointed out earlier, on similar lines we may also consider
the freedom enjoyed by providers to deepen our
understanding of the Indian higher education market.
Freedom of Entry
Freedom of entry (and exit) for producers is essential to
guarantee efficient allocation of resources and to limit the
possibility of monopoly profit. Can we apply the same logic to
the higher education market and is it desirable? The specific
characteristics of higher education as discussed earlier
provide us a clue to the answer. If there is no restriction on
entry, there is a high possibility of compromising with the
quality of education as providers, no matter whether they have
expertise or not, will crowd in taking full advantage of the
absence of clear specifications about quality and adequate
monitoring by a regulatory authority.
Freedom to Specify a Product

In a competitive market, a producer should have the full
freedom to determine what to produce and what to sell. The
valuation of the product is correctly assessed in the sphere of
the market. For higher education, the freedom to offer courses
Page 25 of 31
should be limited to an extent. Since market-oriented

professional courses are in demand owing to job prospects,
private providers will have a strong tendency to offer market-
oriented courses. Similarly, in research private funding will
promote applied research rather than fundamental research
because return from such kind of research is uncertain and
associated with a long gestation period.
Freedom to Use Available Resources

In a competitive market, a producer has the freedom to decide
what to do with the surplus as the concept of profit in
education is (p.212) not tenable. A firm can either reinvest the
surplus or pay dividends to investors. For education the
freedom is restricted because education is not a profit making
industry. If surplus is generated then it is required to be
reinvested to expand the sector or it has to be dedicated to
society.
Freedom to Determine Prices

Producers should set the price to equate supply with demand
and achieve allocational efficiency in the process. For the
education market, particularly the higher education market,
price should not be left to the discretion of a producer simply
because education is not like any other commodity. The issue
of having discretion over determining the price is only for the
private sector. Generally the number of seats in an institution
is given and for reputed institutions the demand far exceeds
the number of seats. If price is allowed to vary, only privileged
students will gain access to these institutions. Merit will be
devalued and social mobility will be curtailed. Government
aided institutions are largely autonomous and therefore, there
is freedom to determine the fee structure. For the private
sector, the price charged should recover the cost of
production and allow for reasonable surplus only.
Incompatibility between the Market and Equity

In this chapter we sought to address the issue of applicability
of market logic to the higher education market. This issue
deserves utmost attention because it has important policy
implications at this crucial juncture in India. The higher
education sector in India seems to be poised for an overhaul
Page 26 of 31
while it undergoes the process of marketization. There is

ambivalence in the policy approach as the government is
grappling with finding out the right mix of public and private
participation, a concern for equity while the dominance of the
neo-liberal ideology in the realm of policymaking has become
more apparent. The promotion of PPPs, inclination to table a
bill on Foreign Education Providers, and setting up of a
regulatory body while the number of private providers
continues to burgeon (p.213) corroborate the propensity to
lean towards a greater role of private providers and reliance
on market principles in shaping the higher education sector.
This chapter examined the desirability of having a market like
situation in higher education characterized in terms of
consumer-student sovereignty and producer-institution
sovereignty. This chapter argued that though higher education
is being recognized as a quasi-public good, it has distinct
characteristics vis–à-vis a conventional commodity which have
serious implications for society and policymaking.
Policymakers should recognize these aspects while pursuing
an inclusive and sensitive society and a vibrant university
system. Penetration of the market, this chapter apprehends
will interfere with the government’s objective of attaining
inclusive expansion.
In a country with widening disparities it is an imperative that

higher education be viewed as an instrument for fostering
social mobility and the policies be made accordingly.
Technically speaking, the market fails in higher education
because of its lack of concern for social need and the huge
externalities that it generates. While the former needs
regulation, the latter calls for public support. Since the market
fails to ensure equal distribution of resources, the role of the
government has to remain proactive in the provision of social
goods like education. Further, the application of market
principles questions the very basic objective of education: is it
for the market or for society? Marketization is synonymous
with commodification and the more we treat education as any
other consumption good like chocolates, the more we rob
education of its vital role in building a democratic, humane,
and inclusive society. Access to higher education may suffer as
privatization raises the cost of education and merit is bypassed
Page 27 of 31
as a new class of consumers-students emerges with money

power which can now choose their product and the providers
even across the border. Competition, in the case of the
education market, has limited significance as the market tends
to remain hierarchical. As we compromise with the true
meaning of education, quality suffers and it strikes at the very
root of the foundation of our society. Virtual free entry in the
absence of a strong and alert regulatory (p.214) authority has
led to an abysmally poor quality of education at all levels. The
other challenge for policymakers is how to revitalize the public
higher education system which is plagued by apathy,
indifference, and malpractices. Should we infuse competition
among universities and colleges through installation of a
competitive funding mechanism and incentivization of the pay
structure of the faculty to usher in a new era notwithstanding
all the shortcomings of a higher education market? The issue
needs a deeper analysis.
Concluding Remarks
This chapter sought to examine the specific characteristics of
an education market focusing particularly on the market for
higher education. In view of the mainstream economists’
proclivity to indulge in market based economic analysis and
arrive at policy measures as correctives to market failures,
this chapter could be construed as a prelude to the analysis of
policy making in education in the following chapters. The
education reforms being carried out over the world seek to
install a market like situation to reap all the benefits of a
market as advocated in mainstream economic theory. As
discussed in this chapter, an education market is essentially
very different and hence it entails a nuanced treatment of
market principles when they are applied to reform the
education sector. In reality, the market structure is deeply
embedded in society and the unequal distribution of resources
and market capacities tends to perpetuate existing
inequalities. There are sources of market failure which require
the state to intervene and assume a larger role in the
provisioning of education. In fact, in order to understand and
appreciate the deeper meanings of education, invocation of
market logic is best avoided.
Page 28 of 31
Notes
Notes:
(1.) Discussed in Chapter 8. Briefly, the neo-liberals argue that
the state should construct the market to reap the benefits of
competition, efficiency, and quality. The precise role of the
state would be to steer it from a distance.
(2.) These sources are broadly similar to the assumptions of a

perfectly competitive market.
(3.) The assumptions of a perfectly competitive market are

homogeneous goods and services, perfect information with the
participants, free entry and free exit of firms to ensure perfect
mobility of resources and a large number of buyers and
sellers.
(4.) In literature, a distinction is made between convergence

and conditional convergence.
(5.) Under the dominance of market pressure as the courses

become self-financing and market oriented, the demand for
these courses continues to mount at the expense of traditional
disciplines like philosophy and history. Even the course
curriculum is revised keeping in mind the demand from
students. The dominance of neo-classical macro economics in
the course curriculum even in a developing country like India
in place of a Keynesian-Kaleckian macro analysis is testimony
to the pressure of the market on education and research in a
broader sense. There are hardly any takers for an important
course like economic history or classical theory of value and
distribution in a reputed department of economics in India.
(6.) Marginson (2010b: 141) refers to Adam Smith’s argument

in ‘The Theory of Moral Sentiments’ about motives for human
association as compared to a neo-liberal’s imagination of
sociability in terms of competition and market exchange.
(7.) In neo-classical economic theory, preferences are prior to

choices and these two are connected conceptually in a tight
manner (Hogan 1997: 123). Empirical evidence based on a
large volume of literature shows that there exist social
Page 29 of 31
interdependencies of consumption and taste formation as

argued by Hogan.
(8.) This is merely a reflection of the obsession of neo-classical

economists with efficiency as an outcome of choice making
without giving adequate attention to the fact that people who
make choices are different with regard to their societal and
cultural values and may not be well-informed and
knowledgeable to make those choices which ensure efficiency
in resource use.
(9.) Competition is generated by modifying the funding

mechanism. At the school level, students are empowered with
vouchers in case they lack resources. For higher education
this requires adequate amount of scholarships to be given to
students while phasing out subsidies being given directly to
institutions. The fee structure would therefore rise as the
students are now assumed to find payment of fees affordable.
(10.) A higher supply of a particular skill may drive the rate of

return lower than what was considered while making the
choice (an individual decides under the assumption that all
others are not doing the same). If all others are virtually doing
the same thing, the impact on market demand and supply will
be so profound so as to entirely negate each individual’s
expectations.
(11.) The government has been trying to promote education

loans in a big way under the Eleventh Five Year Plan (EFYP).
However, it suffers from various types of discrimination like
gender, income, and region despite measures adopted by the
government to curb these practices. Poor students feel
vulnerable to loans more than the rich ones.
(12.) In 1993, in J.P. Unnikrishnan and Others vs State of AP

and Others the Supreme Court of India held that education
being a fundamental right, commercialization of education
was not permissible and it was opposed to public policy and
Indian tradition and the charging of capitation fees was illegal.
(13.) Where information asymmetry in the higher education

market assumes importance is when education providers,
mainly private ones, suppress relevant information in their
Page 30 of 31
brochures or mislead students regarding infrastructure,

faculty, and placement services. Only 57 per cent of the
colleges covered under the University Grants Commission
(UGC) grants and 24 per cent of the total colleges were
accredited by NAAC in 2008. Only one-third of the universities
were assessed by the NAAC (Thorat 2008).
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Concept of Market and Market Failure in Education

University Press Scholarship Online

Education and Economics: Disciplinary Evolution

Print publication date: 2012

Concept of Market and Market

Abstract and Keywords

Education policy world over is increasingly being determined

Keywords: education, quasi-market, market failure, efficiency, equity,

This chapter initiates a discussion on policy issues based on

We commence our discussion with the concept of market and

a quasi-market to set the stage for a critical appraisal of the

Market and Market Failure in Higher Education

The convenient and conventional point for examining policy

The education market tends to be always imperfect because in

Under restrictive assumptions,3 perfect competition

To reconcile the objective function of universities and the

competition’, where the institutions play a key role in the

available to students and parents through publication of

The Case of Adverse Selection and Moral Hazard

The problem of a ‘moral hazard occurs when the presence of

Knowledge and the Failure of the Market

The market fails in many respects to deal with knowledge and

uncertainty continuing to haunt investors. Often the private

This source of market failure can also be looked at from a

Since knowledge defies the economic law of scarcity, the

One disturbing feature of the emerging global economy is the

growth and the other at low growth. Growth of the knowledge

The market can be inimical to particular types of knowledge

A related aspect of the power of destruction of the knowledge

market and indigenous knowledge. Many traditional

everyday products highly priced (Kenway et al. 2006 quote

Knowledge can give rise to increasing returns to scale which

Marginson et al. (2010) add a new dimension to situate

elite institutions are of value owing to the richness and rigour

Because of the hierarchical nature that exists in the quality of

rejection of these pieces of paper by the industry resulting in

The rise in the network of open source associations in the

Market Failure: Imperfect Capital Market

Students may not be able to assess the likely benefits of higher

The other problem is that of illiquid investment. This problem

From the perspective of a lender, asymmetric information and

(p.198) Market for Higher Education is Hierarchical

human capital. As Marginson (2009a: 208) argues essentially

Extending the argument a little further, Bridges and Jonathan

The trouble is, however, that market conditions contain

Thus the very rationale for infusing the market in higher

Market is Inherently an Unequal Sphere

Educational markets, as Hogan (1997: 135) argues:

… are not just mechanisms that record and aggregate

Marginson (2004: 186) argues that some students gain in the

Market and Social Values

Values associated with community living like compassion and

Preference, Choice, and Endowments

Endogenous Preference Formation

Economics transcend historical and institutional variations.

1. Market capacities other than land, labour, and

market skills, credentials, cultural capital, information,

multiplier effects with implications for the economic

6. Markets are political constructions of distribution of

Educational choices are affected by resources and capacities

Quasi-market for Higher Education

(p.204) Policy initiatives in countries like the United Kingdom

giving freedom to students and parents to choose the right

State and the Market Interface