21.8.06

INCENTIVE COMPATIBILITY CONSTRAINTS. Sunday Times columnist Simon Jenkins asserts, When students pay full fees, universities will flourish again. It appears as though Britain's universities are requiring matriculants to put up some earnest money.
The number of students is fewer than the number of places and universities are chasing students. This is despite the fact that the 300,000 confirmed in their initial choice of courses is one of the highest on record. A further 90,000, mostly with below the requisite qualifications, will be allocated places through the clearing house system, education’s answer to eBay. A decrease in the latter group is partly the result of a 17,000 drop in overall applications with the start of the £3,000 top-up fee this year (balancing the surge last year).
That's an outcome consistent with an incentive-compatible self-selecting tariff (I still have open spaces in advanced theory class if you're curious.)
This suggests that a market economy is lurking deep within British higher education. Worthy students are qualifying for places in unprecedented numbers. Less worthy ones are being mildly deterred from wasting time and money on a possibly lesser degree.
Quite. What the article might also suggest is that there's excess capacity in British higher education.
The government naively hoped that universities would vary top-up fees to offer students a choice. In fact only three of Britain’s 96 universities have not imposed the full amount, which suggests that the fee was far too low. A few universities desperate for applicants are being tempted to reduce their fees at the last minute, because for every £1 they get from an extra student they get £2 from the government, a state subsidy to mediocrity.
That's probably true in the States as well, despite positional arms races, driven by parents' correct perceptions of what "access" is doing to higher education, that bids up prices at the fifty colleges claiming to be in the U.S. News Top 20, despite attempts by the state flagships to entice more out-of-state full-fare students, despite pleas of poverty from administrators seeking more federal and state aid.

Dig into the economics, however, and the commentary begins to break down.

The truth is that nobody can value a university education except its customers and they are not charged its cost. As a result universities remain among the last unreformed corners of the public sector, still working to the medieval calendar. Students are left untaught for half the year so they can attend harvests, pilgrimages and religious festivals (refashioned as pubs, fly-drives and raves).

Expensive campuses, laboratories and libraries are left idle for most of this time. Courses that could be completed in one or two years are stretched to three or even four. Meanwhile, centralised research assessment has become fantastical. About 150,000 academics must overproduce work of doubtful benefit to be measured by peer review, metrics and citation indices.

There is no good reason for not charging students the full cost of their higher education, subject to a test of means. That cost is now between £9,000 and £15,000 a year. I know of no serious economist who can show that this is really a national investment, only that most graduates are richer than most non-graduates.

Back to front: whether there is a national interest or not in subsidizing college depends on the marginal positive externalities universities produce. I'm still of a mind that the state investments are a regressive transfer. The idle capacity argument misleads. How much idle capacity does a car park represent, let alone the suburban train facilities that are empty overnight in London and empty during daylight in Oxford and Guildford and Watford and Bletchley? Publish or perish? I will make common cause with anyone, inside the academy or outside, who is prepared to accept that there are journals that others read and journals that exist only to pad resumes, and to change the reward structure so as to defund the latter. The customers? Is it time for a refresher course in the Principle of Derived Demand? In the States, much of the discontent with higher education comes from employers who are increasingly frustrated with the lack of higher-order, let alone lower-order, skills in honors graduates of precisely those fifty in the top twenty.

Deeper into the article, Mr Jenkins appears to accept the regressive transfer argument.
University education is a benefit that accrues peculiarly to the individual. Whether paying for it should be regarded as surtax on middle-class families or a future tax on graduate incomes is immaterial. There is no justification for forcing the mass of taxpayers, who are nowadays as much poor as rich, to pay for it. Government support should be limited to scholarships and research endowment, not for basic costs. Such subsidy can be targeted at poor students, engineers, doctors or teachers, according to taste. Blanket subsidy prevents such targeting and encourages indolence and indulgence.
I would note only that there is such a thing as a labour market, and here in the unreconstructed States, there are ample incentives for people, rich or poor, to study medicine or engineering, and there's room for extending that principle to teaching. (Do the high-risk school districts in North American cities really expect to be able to conscript the best teachers?)

Toward the end, he offers an observation that I hope to be able to expand upon later this week.
Those that want to teach should not be penalised for it. Those that want to do esearch should go in search of the relevant support. If brighter, poorer students go to cheaper universities, so much the better for those universities. That is how the great municipal institutions faced down snobbish Oxbridge in the first half of the last century.
That has been my charge to Northern Illinois for as long as I have understood what our institutional research is telling us: our best students are individuals who well might have thrived at Wisconsin or Northwestern but for their circumstances. We do them a dis-service by choosing not to bring out their full potential.

(Via University Diaries, who notes that the continued calls for academic markets and a variety of institutional missions in Britain and Europe are evidence of a status quo dysfunctional.)

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