It has been identified that market failures can result from lack of information between individuals engaged in a transaction in a given market. The market being discussed in the context of this research has been the public higher education market. The analysis thus far has focused on asymmetry of information creating market failures in general.

1. Assessing the costs of Public Higher Education in the
Commonwealth of Virginia Part 8
Robert M. Davis MPA
The Guy in Glasses
7/22/2014
Is Market Failure identified in Virginia’s Public Higher
Education Market? How Market Failure signals Intervention.
“[The] market for [public] higher education is an imperfect market and
includes the identification of asymmetric information being
present….asymmetric information results from “students [having] to
engage in an expensive discovery process” that entail sorting costs of
trying to disseminate information. As a result, there is “an incentive to
economise [benefit] on such search costs to the point where many
decisions may be less than adequately informed”. The incentive to
obfuscate information from students through sorting costs by means of
information asymmetry is especially common among lower income
students”.

2. Assessing the costs of Public Higher Education in the Commonwealth of Virginia: Is Market Failure
identified in Virginia’s Public Higher Education Market? How Market Failure signals Intervention.
Has asymmetry been identified in the higher education market?
It has been identified that market failures can result from lack of information between
individuals engaged in a transaction in a given market. The market being discussed in the context
of this research has been the public higher education market. The analysis thus far has focused
on asymmetry of information creating market failures in general. Briefly recapping, Stiglitz
(2001) shows that the use of asymmetry information can lead to a competitive advantage in a
market transaction; therefore, Stglitz (2001) has concluded that an incentive is present among
individuals to intentionally withhold information in the pursuit of benefits. The proposed
research has laid out that asymmetry of information is present in the Commonwealth of
Virginia’s public higher education market and these findings will be elaborated upon in the
findings section of this work. However, it would be beneficial if we examined other existing
research that supports the claim that asymmetry is present.
David Dill’s (1997) research identified that “student’s lack sufficient information about
[higher education] institutions…to make discriminating choices (as cited in Amaral, 2007, p. 34).
The lack of information held by students in the transaction in the market for public higher
education, according to Stiglitz (2001) would result in a “quasi-market” or imperfect market as
prices are distorted by the provider as the consumer (student) is unable to make a rational
decision due to limitations of information. Dill’s (1997) research strengthens the observation that
information is not shared symmetrically between providers and consumers and as a result serves
as identification of Stiglitz (2001) asymmetry of information concept.

3. Douglas Blackmur (2002) examined a range of policy issues that pertained to higher
education with an emphasis on quality assurance. The rationale for this research was predicated
on the perception that “there is arguably a strong public interest in institutions of higher
education conducting themselves in ways which respect principles of accountability, fairness,
transparency, and responsible use of taxpayer funds (p. 3). Blackmur identifies in his research
that the market for higher education is an imperfect market and includes the identification of
asymmetric information being present. The research contends that asymmetric information
results from “students [having] to engage in an expensive discovery process” (p. 4) that entail
sorting costs of trying to disseminate information. As a result, there is “an incentive to
economise [benefit] on such search costs to the point where many decisions may be less than
adequately informed” (p. 4). The incentive to obfuscate information from students through
sorting costs by means of information asymmetry is especially common among lower income
students (Blackmur, 2002).
Blackmur’s (2002) research findings identified asymmetry of information in higher
education markets and recognized there was an incentive to do so, supporting the earlier case
made by Stiglitz (2001). Amaral’s (2007) research compliments Dill’s (1997) and Blackmur’s
(2002) research findings and contends that for a market to be efficient “consumers should…have
adequate information on prices” (p. 34) and providers should share information symmetrically to
ensure an efficient market exchange takes place during a transaction. Amaral (2007) notes that
the United States public higher education market is a unique case as it has a greater deal of
autonomy being granted to its public institutions than European counterparts. The increase in
autonomy allowed institutions to raise prices by determining the level of fees that they are able to
charge. This autonomy compounds the issue of identified asymmetry of information in the public

4. higher education market as students and parents (consumers) may not have adequate access to
information in the public higher education market (Amaral, 2007).
Research by Stiglitz (2001) identified that intentional use of asymmetry of information to
trigger market failure is bad since it causes markets to be inefficient; there is an incentive
however for an individual in that market to limit information as it can provide a competitive
advantage during a transaction. Dill (1997), Blackmur (2002) and Amaral (2007) identified in
their research that asymmetry of information is present in the higher education market and
identified that creating asymmetry of information provides benefits to the providers (institutions)
at the expense of the consumer (students and parents). When market failure occurs it does not go
unnoticed and in fact results in warranted action on behalf of a third party to correct the
identified failures resulting from asymmetrical information triggers.
My research proposes that the identification of asymmetry of information in higher
education may be extended to the public higher education market and specifically the application
of mandatory non-educational fees. The proposition holds that information regarding mandatory
non-educational fees is intentionally withheld by providers (institutions) from consumers
(students) under the premise that by doing so provides a self-benefit to the institution which I
argue is profit maximization; this profit maximization is the incentive outlined by Stiglitz (2001)
that encourages public higher education institutions to intentionally trigger market failures. This
research expands upon the existing research and presents an original and unique application of
market failure resulting from asymmetrical information in the discussion concerning the higher
education market.

5. Market failure signals government intervention
Marlow (1995) asserts that when a market failure occurs, it promotes government to act
in order to correct the distortion causing markets to fail. As consumers do not have adequate
information on the costs associated with public higher education, their ability to make a rational,
well informed decision is violated by imperfect information. Therefore, the government is
prompted to intervene in the public higher education market and ensure information sharing
between providers and consumers is symmetrical and mitigates market failure from occurring.
As Amaral (2007) states, “there is an indisputable responsibility and legitimacy of public
authorities in guaranteeing the quality of higher education…the state needs to regulate the
market [when market failure results] to avoid socially unacceptable distribution outcomes in
terms of equity (p. 40). These unacceptable outcomes that Amaral (2007) makes mention of are
what is known as public values failures and they often result from market failures.
*Continued in the next segment released1
1
Full body of research can be read, reviewed and accessed here:
http://vtechworks.lib.vt.edu/handle/10919/23281

6. References
Stiglitz, J. (2001, December 08). Information and the change in the paradigm in economics.
Retrieved from http://www.nobelprize.org/nobel_prizes/economics/laureates/2001/stiglitz-
lecture.pdf
Amaral, A. (2007). Role, responsibilities and means of public authorities and institutions:
Challenges in the light of a growing emphasis on market mechanisms. In L. Weber & K.
Dolgova-Dreyer (Ed.), The legitimacy of quality assurance in higher education: Council of
Europe higher education series No. 9 (pp. 31-48). Council of Europe.
Marlow, M. (1995). Public finance: Theory and practice. New York,NY: Dryden Press.
Dill, D. (1997). Higher Education Markets and Public Policy. Higher Education Policy, 167-185.
Blackmur, D. (2002, September-October). Issues in higher education quality assurance. 16th
annual australian international education conference, Hobart, Tasmania. Retrieved from
http://www.aiec.idp.com/pdf/Blackmur_p.pdf