Endowment Management Based on a Positive Model of the University

45 Pages Posted: 22 Dec 2012 Last revised: 24 Nov 2021

See all articles by Caroline M. Hoxby

Caroline M. Hoxby

Stanford University; National Bureau of Economic Research (NBER); Hoover Institution; Stanford University

Date Written: December 2012

Abstract

I propose a positive model of the university that generates many apparently peculiar features of universities such as endowments and tuition subsidies. The model proposes a specific objective function: a university maximizes its contribution to the intellectual capital of society, valued at social returns. The objective function is enforced within the model-that is, it leads to actions that reinforce the initial selection of the objective function. Endowments also arise naturally within the model: they are a necessary feature of certain universities, not an accident. The model has important implications for the decisions that universities should make on many fronts, but I focus on the implications for financial decisions, especially universities' endowment spending rules and portfolio allocations. The model is designed to explain America's great private research universities and very selective liberal arts colleges and-with modest adaptations-institutions like America's and Britain's great public research universities. Indeed, a ancillary benefit of the model is that it provides a justification for existence of the aforementioned institutions by assigning them a unique role in the creation of the world's intellectual capital.

Suggested Citation

Hoxby, Caroline M., Endowment Management Based on a Positive Model of the University (December 2012). NBER Working Paper No. w18626, Available at SSRN: https://ssrn.com/abstract=2192800

Caroline M. Hoxby (Contact Author)

Stanford University ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hoover Institution ( email )

Stanford, CA 94305-6010
United States

Stanford University ( email )

Department of Economics
Stanford University
Stanford, CA 94305
United States
650-725-8719 (Phone)
650-725-5702 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
35
Abstract Views
601
PlumX Metrics