In the past decade, tuition fees have begun to play an increasingly
important role in the funding of higher education. In the OECD, almost
half of the member states have increased the share of private funds
in the expenditure on higher education (Kärkkäinen, 2006). An increasing
reliance on tuition fees makes it important to raise fees
efficiently. This paper analyzes a specific aspect of tuition fees that
has a potentially important impact in this respect: preferential fee
regimes under which higher fees are levied on out-of-state students.
The welfare effects of such fee arrangements are potentially ambiguous:
on the one hand, they distort the migration decisions of
students. On the other hand, they might help to correct inefficiencies
arising from the mobility of students or graduates under decentralized
decision making over higher education policies (see for instance
Justman and Thisse, 1997, 2000)