Public College Quality and Higher Education Policies of U.S. States

States differ substantially in higher education policies. Little is known about the effects of state policies on the performance of public colleges and universities, largely because no clear measures of college quality exist. In this paper, I derive a measure of college quality from the early career earnings of individuals receiving a bachelor's degree in the 1992-93 academic year from a public college. Using instrumental variables to correct for individual selection into a state public college system, I find considerable variation in value-added by states' public college systems; relative to a baseline, the value-added ranges from -30% to 50% an average student's annual earnings. Using these measures of performance, I then investigate how various aspects of state higher education policy affect outcomes. I find that states with higher faculty quality and with more quality differentiation among public colleges generate higher value-added to student earnings, whereas more expenditure per student does not appear to promote higher performance.