The Demand for Higher Education Facing an Individual Institution

The purpose of this paper is to provide an estimate of the elasticity and cross-elasticities of demand for higher education facing an individual institution. The utility which a high school graduate derives from each educational option open to him is assumed to be a stochastic function of the attributes of that option. For certain types of utility functions the maximization of utility results in the logit probability model. This model is used to analyze the choices made by a sample of high school graduates in Hawaii. Estimates of the price elasticity and the cross-price elasticities of demand for enrollment at the University of Hawaii are obtained. It is found that the demand is quite inelastic with respect to both tuition and total cost of education. These estimates imply that changes in tuition will not affect enrollment appreciably.