We present a model of public higher education finance in which demand for educational services can exceed supply because of indivisibilities in educational investment. In such situations, a screening mechanism--which may be imperfect because of direct or indirect discrimination--is required for allocation. We show how changes in the education premium affect political support for affirmative action policies. When the education premium is relatively low, the matching efficiency gains provided by affirmative action policies are relatively high compared to the opportunity cost of not acquiring education, and the majority supports broader affirmative action. In contrast, when the education premium is high, the opportunity cost of not acquiring education is high relative to the matching efficiency gains provided by affirmative action policies, and the majority's support for affirmative action is weaker. With endogenous wages, the negative relationship between the returns to education and affirmative action is reinforced.
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Last update: July 19, 2001