Baumol and Bowen Cost Effects in Research Universities
31 Pages Posted: 27 Sep 2012 Last revised: 3 Apr 2014
Date Written: March 2014
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.
Keywords: Cost functions, staffing patterns, agency problems, shared governance
JEL Classification: I23, I28
Suggested Citation: Suggested Citation