We analyze a Massachusetts merit aid program that gives highscoring students tuition waivers at in-state public colleges with lower graduation rates than available alternative colleges. A regression discontinuity design comparing students just above and below the eligibility threshold finds that students are remarkably willing to forgo college quality and that scholarship use actually lowered college completion rates. These results suggest that college quality affects college completion rates. The theoretical prediction that inking subsidies of public institutions can reduce consumption of the subsidized good is shown to be empirically important.
Cohodes, Sarah R., and Joshua S. Goodman. "Merit Aid, College Quality, and College Completion: Massachusetts' Adams Scholarship as an In-Kind Subsidy." American Economic Journal: Applied Economics 6.4 (October 2014): 251-285.