Ehrenberg, Ronald G., and Daniel R. Sherman. 1984. “Optimal Financial Aid Policies for a Selective University.” Journal of Human Resources 19(2):202-230.

Our paper provides a model of optimal financial aid policies for a selective university. The model implies that the financial aid package to be offered to each category of admitted applicants depends on the elasticity of the fraction who accept offers of admission with respect to the financial aid package offered them, the propensity of the category to enroll, the elasticity of the category’s average quality with respect to the number admitted, and the relative weight the university assigns them in the utility function. While the latter must be determined subjectively, the former parameters are subject to empirical estimation. We conclude with a study of one institution’s data and illustrate how they may be estimated. These estimates are then applied to illustrate what the “optimal” financial aid policy would be for the university.

Ehrenberg is Professor of Economics and Labor Economics, Cornell University, and Research Associate, National Bureau of Economic Research. Sherman is a Ph.D. candidate in labor economics at Cornell University. The empirical research reported in this paper was performed in cooperation with the Admissions and Financial Aid Office at Cornell University. We are grateful to James Scannell, Dean of Admissions and Financial Aid, and Anthony Lolli, Director of Student Information Systems and Research, for providing us with the data, computer time, and summer support for Sherman. In addition, they have assisted us in our investigation with advice and direction concerning those issues related specifically to admissions and financial aid. We are also grateful to numerous colleagues at Cornell and the NBER and to Stephen Hoenack for their comments on an earlier draft. The views we express here, however, are strictly our own and do not necessarily represent the views of any of these individuals, of Cornell University, or of the NBER. Financial support from the National Science Foundation to Ehrenberg under grant SES-83052052 is also gratefully acknowledged.

© 2003 by the Board of Regents of the University of Wisconsin System

US ISSN 0022-166X

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