Robert E. Martin

Tuition discounting: theory and evidence

Abstract It is frequently assumed that rising enrollment improves an institutions financial condition. In fact, enrollment growth can have an adverse impact on the institutions financial condition, even in the presence of excess capacity. The reason for this surprising conclusion is that the size of the subsidy required to attract additional students may cause the net financial impact to be negative. In the past two decades, private institutions have been very aggressive in their competition for gifted students. Administrators and their governing boards should carefully review their tuition discounting policies, since conventional wisdom may be misleading. This paper contains a theoretical discussion of tuition discounting policies and it explores how the marginal benefit, net of the marginal cost of increased enrollment, varies across public/private institutions and across institutions with different missions.

Partnerships, Profit Sharing, and Quality Competition in the Medical Profession

This paper contains a theoretical model of medicalpartnerships with individual quantity and qualitychoice. The firm selects price, the number ofpartners and profit sharing. The firm encouragesinter-firm quality competition and discouragesintra-firm quality competition through differentialprofit sharing. An empirical model using data from anationwide survey of medical practices supports thetheoretical results. Further, empirical resultssupport the view that time per visit can be used as aproxy index for quality in the primary carephysician market.

Measuring College Affordability

The declining college affordability hypothesis rests primarily on polling results, a rising share of income taken by college costs, and rising student debt. But, polls, debt, and the share of income taken by college costs are not sufficient statistics to determine if affordability has in fact declined for any given household. We derive an empirical measure of affordability from a household utility model that is sufficient to determine whether affordability is increasing or decreasing. We apply this empirical measure across the income distribution for public/private two-year and above institutions. For households with incomes less than or equal to median income, four year colleges became less affordable from 1987 to 2008. We also find that the financial burden imposed by higher college costs is creeping up the income distribution. The affordability measure derived in this paper can also be applied to other consumption items, such as housing, healthcare, consumer durables, food, or gasoline.

Baumol and Bowen Cost Effects in Research Universities

We estimate three models of cost per student using data from Carnegie I and II public research universities. There are 841 usable observations covering the period from 1987 to 2008. We find that staffing ratios are individually and collectively significant in each model. Further, we find evidence that shared governance lowers cost and that the optimal staffing ratio is approximately three tenure track faculty members for every one full time administrator. Costs are higher if the ratio is higher or lower than three to one. As of 2008 the number of full time administrators is almost double the number of tenure track faculty. Using the differential method and the coefficients into Baumol and Bowen effects. This analysis reveals that for every

The Cost of Crafting a Class: (In)Efficient Financial Aid Allocation at Two Private Colleges

1 in Baumol cost effects there are over

Do Colleges and Universities "Manage" Their Financial Reporting?

2 in Bowen cost effects. Taken together, these results suggest two thirds of the real cost changes between 1987 and 2008 are due to weak shared governance and serious agency problems among administrators and boards.We estimate cost models for both public and private research universities and use partial differentials from these models to estimate different cost effects. The results suggest both Baumol’s cost disease and Bowen’s revenue theory drive cost higher and that Bowen effects are larger than Baumol effects. Tight revenue since 2008 reversed some declines in productivity and accelerated the trend in economizing on the use of tenure track faculty. This behavior under loose and tight revenue constraints is consistent with Bowen’s revenue theory.

Changing Staffing Patterns in Private and Public Research Universities

In order to meet two key objectives, enrollment managers at colleges and universities make extensive use of single equation probability models. The first objective is to generate sufficient financial resources to educate the students enrolled. The more dependent the institution is on tuition revenues, the more important is this objective. The second objective is to distribute and monitor student subsidies according to need, merit, and the institutions diversity goals. This paper reviews the existing theoretical literature on the allocation of financial aid and proposes a more complete method of analyzing the matriculation process. Using proprietary data from two representative small colleges, we demonstrate that single equation estimates of enrollment probabilities can suffer from an endogeneity bias. We propose a simultaneous probit-tobit system that corrects for this bias. Our two major findings are: (1) contrary to the predictions of the theoretical model, institutions of higher education make larger financial aid awards to students with high enrollment propensities and (2) traditional single equation models therefore systematically overstate the true impact of financial aid on enrollment probabilities.

Tuition discounting without tears

As universities come under increasing scrutiny for their high costs, this author finds that they may be manipulating their finances as well. They want it to seem as if they are putting more money into academic activities than they actually do. Is this due to the culture of deceit that produced so many accounting irregularities in corporate America? It may well be.

Loan Performance and Race

Staffing ratios are an integral part of private sector productivity analysis; but, an underutilized tool in higher education. This paper contains a detailed staffing analysis of Carnegie I and II research universities over the period from 1987 to 2008. The analysis reveals that university administrations took steps to economize on faculty resources by employing more contract teaching faculty and more part time teaching faculty while further economizing on the use of full time nonprofessional staff. In contrast, university administrators significantly increased the number of executive/managerial and professional administrative staff per 100 students over the same period. As a consequence, 60 percent of the real increase in total cost per student among public research universities and 47 percent of the real increase in total cost per student among private research universities from 1987 to 2008 can be explained by rising overhead costs.