Peer Group and Distance: When Widening University Participation is Better


  • Berardino Cesi,

    1. University of Rome Tor Vergata, Italy
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  • Dimitri Paolini

    1. Università di Sassari, CRENoS and DEIR, Italy
    2. Université catholique de Louvain, CORE, Belgium
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    • We wish to thank Antonio Vezzani, Fausto Galli, Gianni De Fraja, Luca Deidda, Pierre Pestieau, Tito Pietra, Vincenzo Scoppa, Xavier Wauthy, the editor and the anonymous referees for their helpful comments. We also thank the audience at the 2nd workshop on Industrial Organization: Theory, Empirics and Experiments in Otranto (Lecce, Italy). The second author acknowledges the financial support of MIUR-PRIN 2008 and Fondazione Banco di Sardegna. The first author thanks the ‘Visiting Professor Program’ at the University of Sassari.


We study the effect of a new university in a two-city model in which individuals’ utility depends on own ability, peer group ability, formal education and mobility costs. We compare a monopoly (one university in one city) with a two-university system (one university in each city). Introducing the second university improves welfare when the fixed cost of each university is low. With two universities, we obtain a symmetric equilibrium for every mobility cost and asymmetric equilibria for low mobility costs. The symmetric system induces the highest welfare and is also Strong Nash (for high mobility costs).