Why does college cost so much? PDF
Preview Why does college cost so much?
Why Does College Cost So Much? This page intentionally left blank Why Does College Cost So Much? robert b. archibald david h. feldman 1 2011 1 Oxford University Press, Inc., publishes works that further Oxford University’s objective of excellence in research, scholarship, and education. Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offi ces in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Copyright © 2011 by Oxford University Press, Inc. Published by Oxford University Press, Inc. 198 Madison Avenue, New York, New York 10016 www.oup.com Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data Archibald, Robert B., 1946– Why does college cost so much? / Robert B. Archibald, David H. Feldman. p. cm. Includes bibliographical references and index. ISBN 978-0-19-974450-3 1. College costs—United States. 2. Education, Higher—United States—Finance. I. Feldman, David Henry. II. Title. LB2342.A685 2011 378.3’80973—dc22 2010007925 1 3 5 7 9 8 6 4 2 Printed in the United States of America on acid-free paper To our families: Nancy Vincent, Brian Archibald, Emily Archibald, and Ben Paradise Susan Lontkowski, Anthony Feldman, and Aidan Feldman This page intentionally left blank Preface This book is the result of ten years of active collaboration and perhaps twenty years of ruminations. We both teach in the economics department of the College of William and Mary. While it may be a surprise to some readers, William and Mary is a state-supported institution. Over the years we have watched the economic fortunes of the Commonwealth of Virginia ebb and fl ow. The fortunes of the college followed a similar pattern with one glaring exception. Dips in the Virginia economy were always followed by recoveries taking the state to new economic highs. On the other hand, the share of the cost of running William and Mary covered by the commonwealth would shrink when the economy dipped, but with the recoveries the state’s share of the bill did not return to its old levels. The fi nances of the college were slowly and somewhat erratically being privatized. Wags started to say that we used to be “state sup- ported” but now we are “state assisted,” and visibly on the horizon we can see the outlines of a time when we will be only “state located.” Such talk annoys governors and state legislators. They counter that with economic recovery the actual dollar contributions of the commonwealth did return to and then surpass old levels. They argue that the share of the budget covered by the commonwealth only shrank because the costs of running William and Mary had grown so rapidly. The College of William and Mary may be special in many ways, but this story is not an example of one of them. Most state universities are slowly being privatized as their costs grow more rapidly than state support. And the rapid growth in costs is not a public-institution viii preface phenomenon. Private institutions also regularly experience increases in costs that outstrip the infl ation rate. Our ruminations about the economic condition of the college and about higher education in general eventually launched us on a serious collaborative research program. This program has led to a series of research papers, policy analyses, and opinion articles on the economics of higher education broadly construed. The big question about higher education cost was in the back of our minds all the time. Some of our work looked at costs directly, but other articles were more tangential (on college graduation rates, for instance). As we continued our research, the big picture became clearer to us, and we decided to take on a larger project. Writing this book has allowed us to bring together a decade’s worth of reading, thinking, and writing about why college costs rise so rapidly. In many ways, our work refl ects who we are, so it is important to explain our viewpoint. Our fi rst premise is that the study of higher edu- cation cost does not require us to park what we know about economics at the door. We study colleges and universities as economic entities, and we think of higher education as an industry. Incentives are very impor- tant shapers of behavior and the structure and workings of markets exert an important infl uence on incentives. Experience tells us that some readers are quite uncomfortable with this approach. They often recoil at the idea that higher education is a mere industry. To them, higher educa- tion serves a higher purpose, so it shouldn’t be compared directly to other earthier industries that fulfi ll baser needs. Alternatively, we hear that adopting an economic approach requires one to consider professors as laborers and students as customers in some oversimplifi ed way. Both of these views refl ect preconceived notions of how economists operate and of what the discipline of economics studies. We think that the view- point provided by the economics discipline is useful, and we hope those who read this book will agree. A second strongly held belief of ours is that evidence is very impor- tant. The question on which we focus is why higher education costs con- sistently rise faster than the infl ation rate. No answer to this question is possible without a cogent story, but no story about a question as complex as ours can be compelling without rigorous evidence. Anecdotes are a time-honored way to bolster an argument, and the higher education lit- erature is full of anecdotal evidence. To a certain extent, this is the use of particular stories in support of more general stories. While we are not shy about using a few anecdotes ourselves, a meaningful look at the col- lege-cost question requires that we examine real data, and as it turns out, preface ix lots of data. Also, the question of why college costs rise more rapidly than prices in general is inherently comparative. We cannot answer it simply by looking at the higher education industry in splendid isolation. We must situate higher education within the overall economy. This is why we must bring our tools of economic analysis to the party. We recognize that many people will think that a book by economists featuring lots of data has the curb appeal of a broken-down tricycle. These are the people we tried to keep in mind as we wrote the book. Colleges and universities have professional leaders: presidents, provosts, and deans, and they have lay leaders: members of college governing boards, state commissions, and state legislators. And college leaders are not the only ones interested in higher education fi nance. Students and their parents have a big stake in the outcomes of decisions about how to fi nance a college education. We want our book to appeal to this broad audience. The issues we talk about are too important to hide behind economic jargon and complicated statistics. We are teachers, so when we need to use some economics, we teach it. Readers should walk away knowing a little more about economics and a lot more about why higher education costs rise so rapidly. Many people helped us along the way. First, we make no claims to theoretical innovation. We do string some theories together differently than others have done, and we are a bit creative about the data we use, but we are inventing no new theories. In the text and in the notes, we have made every effort to indicate our intellectual debts. We have leaned particularly heavily on the work of William Baumol of Princeton University and New York University. Also, a recent book by Claudia Goldin and Lawrence Katz of Harvard University helped us immensely. Second, our colleagues at William and Mary have been very helpful. Students in Professor Archibald’s “Seminar on the Economics of Higher Education” have read and commented on various portions of the manu- script. We would like to particularly thank Caitlin Coffey, Hans Leonard, and Maxim Lott who gave us detailed comments on early versions of the manuscript. W. Taylor Reveley, president of the college; Michael Halleran, provost; Davison Douglas, dean of the law school; and Eric Jensen, director of the Thomas Jefferson Program in Public Policy, all provided useful comments. Others outside the college also were very helpful. We would like to particularly thank Sandy Baum, professor emeriti of eco- nomics at Skidmore College and senior policy analyst at the College Board, for her many useful comments. Edward Tower of Duke University also was kind enough to read a portion of the manuscript, and Isaac Yates helped us with the cover design.
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