Educational inequality hampers the role of education in upward mobility for the poor. Lack of financial resources for low-income students leads to reduced motivation to study and contributes to educational inequality. This study examines the impact of a reservation policy in developing markets that transfers college seats from higher-income students to disadvantaged groups. Results suggest that a small transfer can improve overall student welfare, but a large transfer may have the opposite effect. Maximizing welfare requires a transfer that is smaller than one aimed at minimizing inequality.

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