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Baumol and Bowen Cost Effects in Research Universities

31 Pages Posted: 27 Sep 2012 Last revised: 3 Apr 2014

Robert E. Martin

Centre College

R. Carter Hill

Louisiana State University, Baton Rouge - Department of Economics

Date Written: March 2014

Abstract

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

Martin, Robert E. and Hill, Carter, Baumol and Bowen Cost Effects in Research Universities (March 2014). Available at SSRN: https://ssrn.com/abstract=2153122 or http://dx.doi.org/10.2139/ssrn.2153122

Robert E. Martin (Contact Author)

Centre College ( email )

600 West Walnut Street
Danville, KY 40422
United States

R. Carter Hill

Louisiana State University, Baton Rouge - Department of Economics ( email )

Baton Rouge, LA 70803-6308
United States

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