The End of Cross Subsidization: University Finances and Online Learning

Abstract:     
Competitive markets tend to press prices to marginal cost. The marginal cost for distributing existing knowledge using pre-existing infrastructure is near zero – an economic reality that internet-based universities seek to use as the basis for a radical expansion of access to higher education. At the same time, the costs of creating knowledge and of training the experts who can distribute it cheaply – the traditional tasks of universities – are quite high. This gap between the average and marginal cost of education is likely to grow larger over time, as mechanized mass distribution becomes more efficient, while the hand-work of creation grows relatively more costly. Market pressures to dis-aggregate expensive creation from cheap distribution threaten to overwhelm the middle and lower ranks of American educational institutions unless new, non-obvious, escapes from the market can be created. The University of the People, a non-profit institution devoted to the core of the educational mission, also serves as a wake-up call: the forces of creative destruction are at work, and it is highly likely to take sophisticated political action to ensure that the end result is innovation and re-creation rather than desolation.

Number of Pages in PDF File: 9

Keywords: education economics, online learning

Accepted Paper Series