Up through the 1980s, the Philippines offered a relatively level playing field for non-profit and for-profit institutions of higher education. What was the result?:
Unlike Filipino non-profits, the for-profits typically did not have entrance examinations, and accepted any student who has completed a secondary education and can pay the relevant fees (Zwaenepoel 1975, pp.163-4). From a survey of Manila institutions, the for-profit institutions had an average student to fulltime faculty ratio of 27:1, whereas the non-profit religious institutions had an average ratio of 19:1 (Miao 1971, pp.71-2). For-profit institutions tend to invest in classrooms to accommodate large enrollments, rather than investing in library facilities, book holdings, or laboratory facilities. Furthermore, Filipino for-profit institutions tend to limit their class offerings to low-cost, labor-intensive classes, such as teacher education and commerce (Zwaenepoel 1975, pp.322, 342, 348, 587). As of 1970, nonsectarian institutions (typically for-profits) spent four percent of their total budget on sites, equipment, and facilities, whereas sectarian institutions (typically non-profits) spent a much higher 12.41 percent (Isidro and Ramos 1973, p.157). As of 1971, for-profits held an average of 2.58 books per student, whereas non-profits held an average of 8.9 books per student (Zwaenepoel 1975, pp.347-8).
Filipino for-profits also produce a different kind of education. Students from for-profit institutions tend to take standardized vocational exams in much greater number, although they pass them at a lower rate. These facts reflect both the vocational emphasis of for-profits as well as the lower academic reputation of their students. Based on a sample of institutions from the Manila area (from 1963 and 1968), students from nonprofit religious institutions pass these standardized tests at an average rate of 38 percent, whereas students from for-profit institutions pass the same tests at a lower rate of 18 percent. For-profits, however, produce a much greater number of students taking the tests, and therefore pass a much greater number of students through the tests. Students at for-profits are approximately ten times more likely to take the tests. Adjusting for the lower pass rate from for-profits, the for-profits are putting about five times the number of students through the tests as the non-profits, even though for-profits educated no more than three-fifths of all Filipino students at the time (Miao 1971, p. 207).
This is broadly similar to the patterns we see in the United States. You might conclude that the for-profit status is more useful when an external test takes care of the signaling, and that a non-profit status is required when no test certifies quality. But why exactly should that be the case? Is the non-profit institution, by being so jealous of reputation, perks, and donations itself, a better producer of signals? If signaling yields so much private value, why can't a private for-profit make a sufficiently strong commitment to a credible signal?
My paper has been published in this book.