COMPLEX PROPOSITION ALERT.  At Minding the Campus, Publius Audax conflates competition for position with competition that augments economic welfare.
The problem with the pursuit of ‘prestige’ is that it is an inherently zero-sum game. What prestige UT gains must come at the loss of a university somewhere else (Berkeley or Columbus). This leads to an endless arms race in rising salaries and falling workload for article-generating academic stars, accelerating the rise in costs for students while distracting energy and initiative away from the quality of instruction.
How shall I proceed?

One way: rephrase the first two sentences.  The problem with the pursuit of 'train speed' is that it is an inherently zero-sum game.  What prestige The Milwaukee Road gains must come at the loss of a railroad somewhere else (Burlington or Chicago and North Western.)  Think again: isn't a faster service a benefit to travellers, no matter whether it's Milwaukee or Burlington or the Rock Island or the Soo Line rewriting the timetables?

And thus the heart of the matter: in what way does the market test for academic credentials work?   The author's premise appears to be that administrators engage in expense-preference behavior (why should managers not act like managers everywhere?) by recruiting professors who lend their names (and their grant money) to the institution, while providing nothing for the students.  Perhaps it is sufficient for the most selective institutions to assemble classes of high achieving self-starters who will polish their human capital with little contact with those star professors who, snarking about falling workload notwithstanding, are focusing on their grants, and their publishing.

But where there is expense-preference behavior, there is implicitly a constraint that the managers must satisfy lest they get fired.  In for-profit businesses, managerial models have a minimum level of profit the firm must earn in order to satisfy the stockholders at the same time the managers are pursuing their goals of sales or market share or growth or emoluments.

Such a constraint is less easy to motivate in a world of non-profit institutions with at least some ability to credibly signal the ability of their clients.  But costs that rise for students at a rate higher than the appreciation in value of the signal (or the return on human capital) are incentives to substitute, and substitution implies the enforcement of constraints.

Thus, the column does not rule out institutions imitating the academic profile of the most highly regarded institutions, and competing on dimensions of student services other than funded research or big time sports.

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