Abstract
Rapidly growing higher education systems are often characterized by market failure in terms of programs’ quality. When new institutions with various motivations enter the higher education market, and when applicants to these institutions are characterized by heterogeneous goals and motivations, acceptance criteria may differ among institutions. As a result, the quality of higher education may deteriorate. The current paper formally expresses this problem in a model for planning quality policy of academic institutions. Afterwards, an explanation is provided regarding conditions for setting national minimal quality requirements. This theoretical framework is applied to the Israeli higher education system, in an attempt to show that there is a market failure. Since controlling bodies do not have complete information about the quality of academic programs and there is low sensitivity to quality variations, high quality institutions do not have sufficient incentives to maintain high quality. Based on this analysis, policy implications regarding the required structural changes are drawn.
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