Tuesday, September 3, 2013

Why U.S. college tuition is so high

Interesting analysis by Dylan Matthews over at Wonkblog of why U.S. higher education is so expensive.  (Spoiler: It ain't tenured left-wing professors or the education lobby).  Basically, it's a messed up market.  Higher education is a market for what economists call an "experience good" whose ultimate quality is unknown for a long time even after a student begins to consume it; and there are too many customers involved in one transaction; and there's something called Bowen's Law at work:

The main signal that you can use is price, and in particular sticker price. The theory is schools that cost more will deliver a better education. That means schools have a real incentive to push up tuition for its own sake. And if the Bowen theorem is right, once tuition goes up, so too does spending, making it harder for the effect to be undone.

“It sets in motion some really bad incentives,” [Robert] Martin [of Centre College] says. “The first is that consumers tend to take their cue on quality from how much each institution spends. Even more damaging is that any institution that tries to compete on the basis of cost, consumers are going to construe that to mean they’re cutting quality. So you don’t have cost competition, and you thus don’t have a competitive pressure to reduce cost.”

Matthews offers evidence that administrative "gilding" is the real cause [emphasis mine]:

At public and private research universities, “institutional support” costs grew more than instruction costs from 2000 to 2010. Indeed, instruction costs accounted for only about 28 percent of cost increases (in those areas where they occurred) for public research universities from 2000 to 2010. It sure looks like administration, rather than instruction, is what’s driving this.

Meanwhile, as Matt Taibbi recently described in Rolling Stone, we have the federal government financing this zany college spending spree while loading up America's youth with onerous debt.


By Dylan Matthews
September 2, 2013 | Washington Post

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