Optimal government subsidies to universities in the face of tuition and enrollment constraints

This paper develops a simple static model of an imperfectly competitive university operating under government-imposed constraints on the ability to raise tuition fees and increase enrollments. The model has particular applicability to Canadian universities. Assuming an average cost pricing rule, rules for adequate government subsidies (operating grants) are derived under conditions of a forced reduction in tuition fees and limiting the increase in tuition fees in the face of increasing demand. These rules are simple to operationalize and interpret.