Association for Public Policy Analysis & Management

This paper quantifies how postsecondary supply is altered when institutions are provided greater autonomy over price-setting. Following a policy change in the state of Texas that shifted tuition-setting authority away from the state legislature to the governing board of each public university, most institutions raised prices and many began charging more for high-demand undergraduate majors, such as business and engineering.  The presidents of the state’s major research universities claimed that tuition-setting flexibility would enable institutions to expand capacity and help students succeed by enhancing program quality. We test this assertion using unique administrative data on price and institutional supply for all undergraduate programs within the state’s public universities. Such within-institution, across-program data on course offerings, class size, instructor type, faculty salary, and faculty-student ratios for a broad set of institutions is novel in the literature. Our main approach is a difference-in-difference model, comparing supply changes for programs that altered pricing considerably following deregulation to those that did not. How institutions generate and reallocate resources in response to greater price-setting autonomy and other changes in the policy environment has not been previously analyzed and may be informative more generally beyond the specific instance of deregulation.