Estimating Tuition Elasticities Of Resident And Non-Resident Enrolments At Southeastern Public Universities

Due to increased reliance on tuition revenue, universities must be cognizant of the impacts tuition changes have on enrolment. In economics, the law of demand indicates that price increases (tuition) cause quantity demanded (enrolments) to decrease. The impacts of tuition increases on revenue depend on the magnitude of these two changes. The contribution of this article is the methodology used to control for competitor pricing in enrolment elasticity models. For resident enrolment, we included other in-state, 4-year public universities. For non-resident enrolment, we used weighting schemes based on enrolment patterns by school and by state to incorporate competitors' tuition rates and relevant economic and demographic information. We applied these methodologies to universities in the south-eastern U.S. from 2003 to 2010. We found that tuition elasticities of both resident and non-resident enrolments at 4-year public universities varied from inelastic resident enrolments to elastic non-resident enrolments at the state level. In some cases, competitor pricing significantly impacted enrolments; in other cases, it did not. Across the full sample, 1% increase in resident tuition rates decreased enrolments by 0.3%. The techniques developed in this article can be used by individual universities or university systems to inform their strategies in setting tuition rates.