29.12.11

WHERE THE EXCESS DEMAND IS.

Jonathan Robe of the sometimes-misnamed Center for College Affordability and Productivity questions the preferences revealed by the state flagship universities.
Could it be that the prestigious public research universities are the ones who are throwing teaching to the side in their quest to catch and overtake the most prestigious private research universities? Are these public institutions the ones who view their missions even more in terms of scholarly research than do the elite private institutions with which those public institutions compete, both for students and faculty?
Competition, whether it involves differentiated products or not, often manifests itself in convergence to a standard.  Mr Robe's colleague Richard Vedder has, probably correctly, suggested that the most highly regarded private universities create excess demand for their services by charging less than the traffic will bear, in order to raise their selectivity profile by generating enough applications to be able to turn down nine in ten, or nineteen in twenty.  Although there are probably fifty claimants to membership in the U. S. News top twenty, there are still plenty of frustrated applicants who treat the state flagships as safety schools.  (I'm not making this up: a few years ago at application season the Wall Street Journal had the story of some young man from a well-off neighborhood forced to settle for his safety school, the University of Michigan.  Talk about crying with your mouth full.)

The state flagships have to credibly commit to the experience and to the profile maintained by the elite privates, and do so in the face of tight state budgets.  Excess demand implies the existence of someone with the willingness and the ability to pay, but to realize the gains from trade, the institution has to provide the desired services.
The trend we see, looking at just instructional and research spending, is the prioritization of research over teaching at both private and public institutions, though the trend is much more noticeable at the public research universities than at their private, not-for-profit counterparts. Whereas spending on research was 52.3% of instructional spending at public institutions in 1999, by 2009, research spending was 58.1% of spending on instruction (at private institutions, the comparable percentage for 1999 was 53.4% and for 2009 was 55.7%).

It is certainly true that a wide variety of factors (including external factors entirely outside of universities’ control) affect institutional spending; nevertheless, it is striking that, during a time when real per student total revenues rose by 11.8% at public research institutions (without the 2007-09 recession, they likely would have risen more), spending on research outpaced revenue growth while spending on instruction lagged revenue growth. The fact that spending on research grew so much faster than spending on instruction is, in my view, strong evidence against the claim that public institutions have needed to hike tuitions to make up for shortfalls from other revenue sources. If revenues were the real problem public higher ed faced, could these institutions not have adjusted by cutting down on their research spending (or at least bring it more in line with instructional spending growth) rather than further burdening those students they are supposed to be serving?
In the presence of common and joint costs, any allocation of costs to a specific activity has an element of arbitrariness.  At the same time, those public institutions cannot simply assert that their faculties are as creative as their Ivy counterparts: those people have to be supported, and they are mobile.

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