The continuing race for exemption resembles a moral hazard

In economic literature, moral hazard, or moral hazard, refers to the situation in which a subject, knowing that he or she will not fully bear the negative consequences of his or her own choices, has an incentive to engage in riskier or less responsible behaviour. It is an oft-referenced concept: think of the bonus/malus clause in car insurance, which rewards responsible behaviour and discourages opportunistic conduct. What is happening in state universities with regard to tuition fees is precisely a case of moral hazard, with risks for public accounts and students.

It also lends itself to the analysis of many public enterprises, when decision-making autonomy is not accompanied by full financial responsibility. The university is therefore a testing ground for the effectiveness of autonomy linked to financial and managerial responsibility. Tuition fees in Italian state universities have long been determined by individual realities on the basis of the principle of autonomy, within legal limits and with income-related differentiations. In 2017, the government introduced the so-called no tax area for students with low Isee, compensating universities for the loss of revenue. The effect has been significant: in just a few years, the share of 'exempt' students has risen from just over 10 per cent to over 40 per cent. The fact that almost all universities have independently gone beyond the national threshold has also contributed to this. This trend has reached significant levels: Pavia reached an Isee of 32 thousand euro in total exemption, and Padua, stopping at 30 thousand, reduced taxation even for those with an Isee of less than 50 thousand euro.

There are probably two reasons behind these choices. The first is to attract students, since part of the public funding depends on regular enrolments, in a context marked by denatality, telematic universities and international competition. The second is to affirm the idea of an essentially free public university, for which the no-tax area offered the ideological premise.

But are these manoeuvres effective and sustainable? As for effectiveness, the impression is that it is a war between the poor. The potential pool of students is set to shrink for demographic reasons. The chase to attract enrolled students by means of exemptions either has no effect, because everyone ends up falling into line, or it undermines the universities that cannot keep up.

As for financial sustainability, we are facing a leap in the dark. Those who announce that they will have an additional 1,000 exempt students from next year are giving up that revenue forever. If each previously non-exempt student paid EUR 1,000, the university would thus give up EUR 1 million a year. And the potential capital loss would be 20 million if we discounted it by applying an annual rate of 5 per cent. Once decided, it is difficult to go back: no candidate for rector would be voted in by proposing to restore lower thresholds. The point is that the decision-makers do not pay the risks. Rectors last only a few years; the burden will fall on their successors, who will turn to the government. And there is no guarantee that state funding will grow compensatingly, especially with rising costs, budget constraints and new public priorities.