Baumol and Bowen Cost Effects in Research Universities
Robert E. Martin
R. Carter Hill
Louisiana State University, Baton Rouge - Department of Economics
October 20, 2013
We estimate cost models for both public and private research universities. The results confirm that cost per student is driven by both the theory of bureaucracy (Niskanen, 1994) and instruction technology. The evidence suggests there are returns to scale in instruction, while staffing ratios and the previous year’s revenues are individually and collectively significant in explaining variations in cost. The deconstruction of cost between 1987 and 2011 reveals that Bowen effects are significantly 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 Rule.
Number of Pages in PDF File: 36
Keywords: Cost functions, staffing patterns, agency problems, shared governance
JEL Classification: I23, I28working papers series
Date posted: September 27, 2012 ; Last revised: October 21, 2013
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