The fact that the elasticity of substitution matters is no big surprise: if college graduates are perfectly substitutable for those with less skill, changing the supply of one relative to the other cannot change their relative price. On the other hand if they are imperfect substitutes then a subsidy encouraging college attendance and increasing the supply of graduates will lead to a decline in the college premium. Since the planner cares about inequality (in so far as it reflects uninsurable risk) she will act in very different ways in the two sets of circumstances. The case of perfect substitutability is interesting however since it may mimic closely what would happen if we had factor price equalization, where the college premium would be determined internationally and hence can be taken as fixed with respect to policy in a single country.