The economics of university behaviour

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P30

>» ■ (h 3 .O ‘ Cfl ^ Cd

CO >» e o 0 (all /)

(3.2)

pr\, pr\ > 0

(3.3)

qx < 0, q2> 0

(3.4)

ti < 0, t2 > 0

(3.5)

28

3. THE UNIVERSITY AS AN ORGANIZATION

The university’s utility function is specified in equation (3.1), with utility a positive function of institutional prestige and the quality and quantity of students. That function incorporates several important fea¬ tures of university behavior, including the desire of administration and faculty to be associated with institutions of high academic standing, as reflected in the caliber of their faculty and students, as well as the desire of university administrators to meet the educational needs of their communities and to serve a large constituency of students. Of course, the relative importance of these desires differs dramatically among institutions. For some, prestige variables will dominate (uu u2 » «3), while for others, operating in the service tradition, aggregate en¬ rollments will be most important (u3 »wl5 u2). Note, however, that for reasons of simplicity, the model does not distinguish between the num¬ ber of undergraduates and the number of graduate students enrolled, even though they are likely to contribute different amounts of utility to different institutions. Equation (3.2) specifies the relationship between a university’s overall prestige and the prestige of its separate departments. The pre¬ cise form of that relationship is not entirely clear. Institutional prestige might, for example, be a simple weighted average of each department’s prestige, or it might be a function of the prestige of only the most highly rated departments at the university. A wide variety of different func¬ tional forms are possible. In general, however, an increase in a depart¬ ment’s prestige will correspond to an increase in the prestige of the institution. Equation (3.3) relates the prestige of each department to the qual¬ ity and number of its associated faculty. Prestige, after all, is no ordi¬ nary commodity; it must somehow be “produced” by faculty members through their research and publications. As a result, a department wish¬ ing to increase its prestige must raise either the quantity or the quality of its scholarly output.25 To accomplish that end, departments have two means available—they can attract more highly qualified faculty, who are especially productive scholars, or they can increase the size of their departments, thus increasing total published output (assuming, of course, that the new faculty members engage in some research). In either case, the increased research activity and the greater volume of publications should lead to increased prestige. 25 For a more complete discussion of the relationship of a department’s prestige to its research output, see Chapter 6, especially Note 14.

FORMALIZING THE MODEL

29

There is a clear analogy here to the household production function approach to consumer behavior.26 According to this approach, con¬ sumers derive utility from various commodities or services that are themselves produced by the consuming unit through the combination of purchased market goods and the household’s own time. Thus, market goods are no more than inputs used in the production processes of the nonmarket sector, with consumer demand for those goods actually a derived demand, reflecting the utility derived from the services that the goods produce. In the case of universities, utility is derived from the prestige of individual departments, with that prestige, in turn, produced by faculty members through their research activities. Thus, universities desire large faculties or especially qualified scholars not because they provide any direct contribution to utility, but because they are indispensable in producing institutional prestige. While the implications of this formula¬ tion may not be immediately clear, it in fact resolves a confusion in much of the literature on nonprofit organizations between inputs and outputs. The concern that these organizations display for the quality and volume of their inputs has led a number of analysts to conclude that the inputs are themselves a source of utility, valued independently of any services that they may produce. The approach employed here, with its obvious analogy to the household production function, em¬ phasizes that the demand for those inputs (in this case, the number and quality of faculty members) is in fact a derived demand, reflecting their role in producing some other commodity (institutional prestige) that cannot be purchased directly through the market. The interpretation of the other equations in the model is straight¬ forward. Equation (3.4) relates the quality of the student body to its aggregate size and to the university’s overall prestige. If we assume that the stock of highly qualified students is fixed in the short run, then attempts to increase enrollments are likely to lead to a decline in the quality of students accepted (or at best, to no change in quality). On the other hand, the higher the prestige of the institution, the more likely it is to attract students of high quality. Finally, the inverse demand function is specified in equation (3.5). Demand depends on both the price charged and the prestige of the institution, with higher prestige permitting the institution to charge higher tuition. In effect, increased prestige translates into increased 26 See Michael and Becker (1973) for an introduction to this approach.

30

3. THE UNIVERSITY AS AN ORGANIZATION

monopoly power, and hence, into greater control over price (i.e., more inelastic demand). I assume that the university would like to maximize its utility through its control over the prestige of its departments and the number of students enrolled. Successive substitution of equations (3.2), (3.3), and (3.4) into equation (3.1) yields the utility function to be maximized, subject to the budgetary limitations defined below. It seems reasonable to suggest that the university faces a budget constraint requiring that its revenues be at least as large as its costs. For simplicity, I assume that there are only three sources of revenue— tuition income, research revenues, and student subsidies provided by outside sources. Total revenues can then be represented as follows: TR = stud# ■t{stud#, pr) + 'Zgi(pr>) + 5 - stud#

(3.6)

where the revenues from government research are seen to be depart¬ ment specific, and to be positively related to a department’s prestige. In order to further simplify the analysis, costs are separated into two components. One reflects the costs of acquiring faculty members, while the other reflects the separate costs of educating students. Total costs, then, take the following form: TC = 2/?' •fac#! •facqual1 + c - stud#

(3.7)

where pl is the cost of a faculty member of unit quality in the ith depart¬ ment. An important feature of this analysis is the use of a hyperbolic cost function to capture the interdependence of faculty quality and size.27 This function implies that the higher the department’s average quality, the greater the shadow price of faculty (i.e., the cost to a department of an additional faculty member, holding the department’s quality constant). Similarly, the larger the department, the greater the shadow price of faculty with respect to their quality (i.e., the cost of a unit increase in the average quality of a department’s faculty, holding their number constant). This makes good economic sense. An increase 27 This cost function is taken directly from Freeman (1977). It was earlier used by Becker and Lewis (1973) in a completely different context—to explore the interaction between the quantity and quality of children.

FORMALIZING THE MODEL

31

in average quality is more expensive for a large department because the increase has to apply to more units, just as an increase in quantity is more expensive if the faculty members are of higher quality, because higher quality faculty cost more. These costs are to be distinguished from c, the per-student costs of education, which are assumed to be constant.28 Such a separation is clearly artificial since faculty costs are a major component of all educa¬ tional expenses. While the distinction between the two types of costs is not especially realistic, it serves as a useful approximation, and consid¬ erably simplifies the analysis that follows. The university, then, faces a constrained optimization problem, with equation (3.1) to be maximized after substituting in equations (3.2), (3.3), and (3.4), subject to the budget constraint implied by a combination of equations (3.6) and (3.7). The Lagrangian takes the following form:

L - u[pr[prl(fac#1, facqual1), . . . , prn{fac#n, facqualn)], q{stud#, pr[prl{fac#1, facqual1), . . . , prn(fac#n, facqualn))}, stud#] — k[stud# • t{stud#, pr[pr1(fac#1, facqual1), . . . , prn(fac#n, facqual’1)]} -I- Zg'lpr'ifac#', facqual1)) + s • stud# — 2,p‘ ■ fac#' ■ facqual1 — c ■ stud#) (3.8)

Just as in the household production function approach, two different first-order conditions can be derived. Taking the first-order conditions with respect to the utility producing commodities (i.e., the prestige of the / th department and the number of students enrolled) yields the

28 In fact, universities appear to experience economies of scale over a reasonably wide range of enrollments. According to the Carnegie Commission (1972, appendix C), educational expenditures per full-time equivalent (FTE) student decline steadily until enrollments of 10,000 are reached. Maynard (1971) finds similar economies up to enroll¬ ments of 4000-5000, although his sample is based on public colleges and not on univer¬ sities. Note, however, that these studies do not always control completely for differences in educational quality. Nor are the cost advantages of large size especially pronounced beyond low levels of enrollment. Nevertheless, the likely existence of these scale econo¬ mies implies that over some range at least the model employed here overstates the costs of increasing enrollments.

3. THE UNIVERSITY AS AN ORGANIZATION

32

following expression:

du dpr dpr dpr1 du dstud#

du_ dq dpr dq dpr dpr' du_ dq dq dstud#

dfacqual' dpr1

(i = 1, n)

(3.9)

This is no more than the familiar condition equating a ratio of marginal utilities to their marginal costs. The numerator of the left-hand side is the marginal utility that results from increasing the prestige of the zth department, while the denominator is the marginal utility that results from increased enrollments. Both have two components. The increased prestige of the zth department affects utility directly, through its con¬ tribution to overall institutional prestige [{du / dpr){dpr / dpr')], and indi¬ rectly, through its elfect on the quality of students [{du/dq){dq/ dpr){dpr/ dprf]. Similarly, increased enrollments operate directly to increase utility {du/dstud#), at the same time that they may re¬ duce utility because of an accompanying decline in student quality [{du/dq){dq/dstud#)]. The expression on the right-hand side can be interpreted in a simi¬ lar fashion. It represents a ratio of marginal costs, with the numerator indicating the shadow price of increased prestige in the /th department (determined by the prices of various goods and their productivity in producing departmental prestige), and the denominator indicating the shadow price of increased enrollments. Again, both have several com¬ ponents. The first two terms of the numerator reflect the increased revenues that result from increasing the prestige of the zth department. That gain can be decomposed into two parts—the increased tuition revenues that can be collected because of the university’s higher pres¬ tige [stud# • (dt/dpr) • {dpr/dpr')] and the expanded research volume that flows to the zth department because of its higher prestige {dg'/dpr'). The third and fourth terms combine to yield the unit cost of increasing the prestige of the zth department, with the derivatives dfac#' / dpr' and dfacqual'/dpr' representing marginal input-output

FORMALIZING THE MODEL

33

coefficients. Together, these four terms reflect the shadow price of increasing the prestige of any given department. The denominator of the right-hand side has a similar interpretation. The first two terms [t{stud#, pr) + stud# • (dt/dstud#)] reflect the increased revenues that result from expanded enrollments, while the third term {s - c) indicates the net increase in costs that results. In combination, these terms give the shadow price of increased enroll¬ ments. Equation (3.9), then, captures a number of important features of university behavior.29 It is, however, only one of the optimization con¬ ditions that can be derived from the model. Taking the first-order condi¬ tions with respect to all factors of production (i.e., the number of faculty and the quality of faculty assigned to the z'th department) yields another important expression: du dpr dpr' dpr dpr' dfacqual' du dpr dpr' dpr dpr' dfac#‘

du_ dq dj£ dq

dq dpr dq dpr

dpr dpr1 dpr' dfacqual' dpr dpr1 dpr' dfac#'

dg' dpr' - p‘ ■ fac#' dpr' dfacqual' dg' dpr' p' ■ facqual' dpr' dfac#'

(i=\,n)

(3.10)

This condition, a generalization of the usual requirements for optimal input use, states that factors of production should be allocated so that the ratio of the utility value of their marginal products is just equal to the ratio of their factor prices. In this example, the factors of produc¬ tion are the number and quality of the faculty members assigned to each department. Thus, for the ith department, dpr'/dfacqual* repre¬ sents the marginal contribution (productivity) of faculty quality to de¬ partmental prestige; dpr'/dfac#' represents the marginal contribution of increased faculty size; and the other derivatives on the left-hand 29 It may, however, be subject to an important qualification. If departments can be loosely classified as being of local, regional, national, or international prominence, then we might expect to see threshold effects. For example, at the threshold where a depart¬ ment of regional reputation would require only slightly more prestige to become nation¬ ally known, we might see increasing marginal utility from prestige improvements, rather than the usual declining marginal utility. In the event of such a nonconvexity, equation (3.9) would not apply at thresholds, although it would still be true locally.

34

3. THE UNIVERSITY AS AN ORGANIZATION

side of equation (3.10) translate these terms into a utility metric. In both the numerator and the denominator, the first term represents the direct contribution of increased prestige to utility, while the second term rep¬ resents the indirect contribution to utility through improvements in student quality. The right-hand side of equation (3.10) corresponds to a ratio of factor prices, with the first term in both the numerator and the de¬ nominator representing the marginal contribution of the factor to in¬ creased research revenues, and the second term representing the price (cost) of an increase in that factor. Note that the hyperbolic cost func¬ tion used here implies that the cost of increasing the number of faculty is positively related to department quality, just as the cost of improve¬ ments in average quality is positively related to faculty size. The equilibrium conditions of this model, equations (3.9) and (3.10), summarize a number of important aspects of university behav¬ ior. The first expression, for example, shows how universities balance the quantity and quality of enrollments in determining the size and composition of their student bodies. In addition, it illustrates the impor¬ tance played by prestige variables in university decision making, and how the increased costs of prestige may be partially offset by an ac¬ companying increase in tuition and research revenues. Equation (3.10), on the other hand, emphasizes that increases in the number and quality of faculty members may have quite different effects on departments in different disciplines. In some fields, for ex¬ ample, where adequate coverage of subfields is especially important to achieving prestige, we would expect to see larger departments because of the high marginal productivity of increases in faculty size. Similarly, the responsiveness of research revenues to increases in the number of faculty in a department or to improvements in their quality might differ sharply among disciplines, providing an incentive, through the effect on relative prices, to expand departments in some fields while upgrading quality in others. Chapter 6 investigates some of these differences em¬ pirically, and estimates, for a small number of disciplines, the elasticity of research support with respect to both increases in faculty size and improvements in faculty quality. Equations (3.9) and (3.10) also have implications for comparative statics. Any relaxation of the budget constraint will lead to an increase in university utility, with both income and substitution effects impor¬ tant. An increase in per-student subsidies (5), for example, will make it cheaper to increase the number of students at the institution. Similarly,

FORMALIZING THE MODEL

35

should the government decide to increase research funding in a particu¬ lar field (i.e., increasing dg'/dpr1 for the ith department), making it easier to secure outside funds, the university will respond to the change in price by increasing the prestige of that department (assuming that departmental prestige is a normal good). The effect of these changes on institutional size, however, cannot be determined from the model alone. If, for example, the price (jpl) of faculty members to some department falls, this implies a loosening of the university’s budget constraint. As a result, the institution can now afford to increase its utility by enrolling more students (an income effect). At the same time, the shift in relative prices makes it more expensive to forego prestige improvements in favor of an increased number of students (a substitution effect). If the substitution effect dominates the income effect, lowering the price of increasing prestige through a fall in the price of faculty will, ceteris paribus, lead to a reduction in institutional size. If, on the other hand, the income effect is larger, more students will be enrolled. Because of the existence of these offsetting effects, the direction of the change cannot be determined without empirical evidence. This model is sufficiently general to incorporate the behavior of the whole spectrum of universities. Some, particularly the elite private institutions, are much more concerned with institutional prestige and student quality than they are with large size. As a result, their indiffer¬ ence curves (in either “quality-quantity” or “prestige-quantity” space) would be relatively flat, showing a comparatively low valuation of en¬ rollments per se (see Figure 3.1). On the other hand, many of the large public universities, committed to a service philosophy, gain much more utility from an increase in enrollment than they do from similar im¬ provements in prestige or student quality.30 Their indifference curves would be nearly vertical (see Figure 3.2). And, of course, all possible combinations of these two extremes (which we might label the “pres30 It appears that the service philosophy is less deeply rooted at many public univer¬ sities than one might expect, for public universities, like their private counterparts, are “upwardly mobile.” After a certain period of broadly based undergraduate education, they typically introduce a number of graduate and professional programs while simulta¬ neously tightening undergraduate admissions standards (Jencks and Riesman, 1968, pp. 129, 282-283). This suggests that quantity maximizing behavior may be less a reflection of long-range institutional goals than a short-run adaptation that enhances the institu¬ tion’s survival prospects. In more formal terms, we might say that the parameters of the utility function are endogenous, with institutional preferences shifting over time as the institution grows more secure and the budget constraints less binding.

36

3. THE UNIVERSITY AS AN ORGANIZATION

Figure 3.1

Indifference curves for an elite private university.

tige maximizing” and “quantity maximizing” views) can be rep¬ resented simply by varying the slopes of the indifference curves. In fact, there appear to be relatively few universities that can be classified neatly as either prestige maximizing or quantity maximizing institu¬ tions. Most combine some elements of both. This model is particularly appropriate for interpreting the behavior of universities in the postwar period, a period characterized by rapidly growing demand and sharp increases in federal and state support of higher education.31 Because the growth of demand often exceeded that of capacity, and because universities refused to raise tuition to market-clearing levels, many were forced to ration the available places on a nonprice basis. Student quality became increasingly important as institutions were able to choose selectively from the pool of available applicants. At the same time, excess demand loosened the constraints of the market and reduced the need for many institutions to respond directly to student preferences by altering their course offerings.32 In¬ stead, faculty priorities became more important and research and scholarly production were emphasized, leading to a greater concern for institutional and departmental prestige. The sudden availability of vast amounts of money for contract research, especially in the sciences, reinforced these trends. In order to secure their share of the newfound 31 See the preceding discussion on pp. 20-21. 32 Note that even when institutions respond to student preferences by varying their course offerings, course content is still decided with little or no reference to students’ desires. In part, this reflects the need for generally accepted academic standards and the perception that students are not in a position to know what material is essential in any given field. As a result, strict consumer sovereignty is not considered appropriate.

FORMALIZING THE MODEL

Figure 3.2

37

Indifference curves for a service-oriented university.

wealth, institutions sought to attract prestigious faculty who would, in turn, attract a large volume of sponsored research. During this period, then, universities increasingly came to resem¬ ble prestige maximizing organizations. Growing student demand low¬ ered the implicit price of improving student quality, while increased federal support of research and development raised the marginal return from prestige improvements. At the same time, social and cultural forces led institutions of higher education to place increasing emphasis on academic quality.33 This change in tastes—reflected in a change in the parameters of the utility function—further reinforced the tendency to pursue increased prestige, as did market considerations. The prolif¬ eration of new institutions of higher education, coupled with the shift of many institutions from commuter to nonresident status because of the extensive construction of federally subsidized dormitory facilities, led to the crowding of many previously protected geographical markets. In order to expand their market areas and to draw from a larger student population, many universities sought to increase their prestige. As the preceding analysis shows, a utility maximizing model il¬ luminates a number of important features of university behavior. It might, however, be criticized for either of the following reasons: (a) the university may in fact be maximizing something other than what I have proposed (i.e., an alternative objective function may be more appropri¬ ate), or (b) the university may be such a complex organization, possess33 For a general history of the evolution of higher education during this period, and the accompanying changes in institutional motivation, see Jencks and Riesman (1968).

38

3. THE UNIVERSITY AS AN ORGANIZATION

ing a multitude of (possibly conflicting) goals, that a model that assumes a unitary objective function would give misleading results.34 For example, universities might, despite their nonprofit statuses, be striving to maximize profits.35 A large residual would enable them to hire prestigious faculty and to expand facilities, which, in turn, would allow them to raise tuition and to attract a larger volume of sponsored research and, thus, to further increase profits. This theory, however, is quite implausible. First, it is difficult to identify the source of a desire to maximize profits. Unlike corporations, where stockholders have an important interest in the profitability of their investments, universities are supplied with capital with no expectation of financial return.36 This is as true of private institutions, where the source of funds is often alumni gifts, as it is of public institutions, where government appropria¬ tions come largely from state tax revenues. Second, the tuition prac¬ tices of many institutions cannot be explained by a theory of profit maximization. Most prices, especially at state universities, appear to be well below those levels that would fully exploit their monopoly power. Finally, universities do not seem to be minimizing costs. Competitive emulation often leads to continued pressures for new facilities.37 In general, the higher the income of the institution, the higher its perstudent costs. As Bowen points out, the basic principle of college fin¬ ance appears to be that “institutions raise as much money as they can and spend it all.”38 This last point raises the possibility that universities may in fact be income or revenue maximizing organizations.39 According to this view, prestige would be an intervening variable, desired by institutions solely because of its ability to attract outside funds. Similarly, increased en¬ rollments would be pursued only as a means of raising tuition revenues. 34 These criticisms closely parallel the recent literature on alternative theories of the firm. For a summary of the attacks on profit maximization, see Cyert and March (1963, chapter 2) and the references cited in note 1 of Chapter 1. 35 For a similar argument regarding hospitals, see Davis (1971). 36 Cootner (1974, p. 233) and Buchanen and Devletoglov (1970, pp. 65-66). 37 Vladeck (1976, pp. 94-96). 38 Quoted in Deitch (1977, p. 125). 39 Niskanen (1971) has developed such a theory to explain the behavior of govern¬ ment bureaus. His definition of bureaus, however, is general enough (“Bureaus are nonprofit organizations which are financed, at least in part, by a periodic appropriation or grant [p. 15].”) to include universities as well as many other nonprofit organizations. Niskanen later expands the model to include “mixed bureaus,” nonprofit organizations that are funded partly by grants and partly by selling their output at a per-unit rate, a formulation he finds particularly well-suited to explaining the behavior of universities and hospitals.

FORMALIZING THE MODEL

39

This theory of revenue maximization provides an alternative to the utility maximizing model because it, too, seems capable of explain¬ ing recent trends in university behavior. Nevertheless, it has a number of deficiencies. First, it fails to explain the increased attention devoted to student quality and its effect on limiting institutional growth. If in¬ come were the sole objective of these institutions, we should see all universities, including the most prestigious, expanding their enroll¬ ments as rapidly as possible. Few have done so, however, preferring instead to emphasize quality and to keep admissions selective. Second, an income maximizing strategy implies that departments would be up¬ graded only if the quality improvement would serve to attract addi¬ tional income. In particular, in a period of rapidly rising support of research and development, we would expect to see institutions focus¬ ing almost exclusively on efforts to improve their science and engineer¬ ing departments. Humanities departments—and to a lesser extent, those in the social sciences—with few outside sources of support, would be neglected. The evidence, however, suggests that institutions are often as interested in the prestige of these departments as they are in the prestige of their science departments.40 Third, an income maximizing model fails to explain why institutions do not fully exploit their monopoly power by charging higher tuition. For many institu¬ tions, especially the most prestigious, higher tuition charges would certainly lead to higher incomes. The utility maximizing model, then, is to be preferred to both the profit maximizing and income maximizing theories, for the latter are difficult to reconcile with much of the available evidence. For some purposes, however, the utility maximizing model is also deficient, for it treats the university as a “black box” and ignores internal decision¬ making processes. While the model yields many valuable insights (e.g., it predicts how institutions will respond to shifts in the relative price of upgrading different departments), it pays little attention to how these decisions are made. As a result, the second possible criticism of the theory—that any unitary objective function is inappropriate for charac¬ terizing university behavior—remains unanswered. In the next chapter I will consider these questions and their implications for the utility maximizing theory previously presented. I hope to show that a thoroughgoing analysis of the internal organization of universities will provide further support for the theory, while also yielding a deeper understanding of university behavior. 40 For evidence on this point, see Table 5.12.

The Internal Organization of Universities1

On one level, universities can be viewed as multiproduct firms, transforming their inputs via a production function. The prime inputs include undergraduate and graduate students, faculty, and assorted capital facilities (classrooms, laboratories, libraries, etc.), while the major outputs are educated individuals and research. In theory at least, these production relations can be specified and estimated, just as they are for firms producing more tangible products.2 The internal organization of universities, however, is quite differ¬ ent from that of corporations, and plays a much more critical role.3 Universities operate with two distinct lines of authority—the adminis¬ tration and the faculty—unlike the simple hierarchy of most business firms.4 The administration, largely responsible for financial matters, 1 Much of the analysis in this chapter is based on a series of interviews conducted by the author with academic administrators at a number of schools in the greater Boston area. Officials from the following institutions participated in the interviews: Harvard University, Boston University, M.I.T., Boston College, Tufts University, the University of Massachusetts, Brandeis University, Northeastern University, Lesley College, and Wellesley College. Unless otherwise noted, the interviews were the source of all evi¬ dence for the discussion that follows. 2 Breneman (1970b), for example, has attempted to estimate the Ph.D. production function at Berkeley. 3 One of the few discussions of the internal organization of corporations can be found in Williamson (1970). For a detailed historical review of these issues, see Chandler (1962). 4 The parallel to hospitals, where the administration and the medical staff form the two lines of authority, is notable. See J. Harris (1977) for a discussion of the implications of two lines of authority for hospital behavior. 40

COMPETITION FOR FINANCIAL RESOURCES

41

exercises direct authority over departments through budgeting proce¬ dures, controlling departmental growth through the annual allocation of funds. In addition, the administration plays the major role in fund¬ raising, as well as controlling undergraduate admissions. On the other hand, graduate admissions, the selection of new faculty members, and the choice of course offerings are generally departmental decisions. Within these academic areas, departments are relatively independent, constrained only by the limits of their annual budget allocations.5 Departments, then, are important decision-making units of the university. As Cyert and March point out, such subunits of an organi¬ zation often have considerable discretion and may pursue parochial interests that are not necessarily the same as the organization’s global objectives.6 As a result, conflict among subunits is likely and is often displayed through the competition for larger shares of the organiza¬ tion’s resources. How, then, do these considerations relate to university depart¬ ments? What are their goals? How do they compete with one another for resources? And what are the implications for the behavior of the university as a whole?

COMPETITION FOR FINANCIAL RESOURCES Academic departments, I noted earlier, may be viewed as prestige maximizing organizations, acting to improve their standing among aca¬ demic and professional colleagues.7 While prestige is a difficult concept 5 The last observation requires some qualification. In many universities, departments are grouped into separate schools along broad disciplinary lines (e.g., the School of Science, the School of Business and Economics). Schools often have their own adminis¬ trative apparatus, and may exercise considerable power within the university. In those instances, departments may not be totally independent in academic matters, and might be required to conform to those rules governing the behavior of all departments within their particular school. In some universities, schools are quite influential, and have consider¬ able say in admissions, budgeting, and other policy decisions. Nevertheless, the exis¬ tence of schools within a university is unlikely to affect the conclusions of the discussion that follows, even though it ignores the additional administrative layer. Only in rare cases would we expect that arrangement to reduce a department’s autonomy to the point where it could no longer be regarded as an important independent actor. 6 Cyert and March (1963, pp. 71-72). This problem is part of the larger issue of goal displacement that has received extensive discussion in the sociological literature. See Etzioni (1964, pp. 10-12) for a brief summary. 7 See the preceding discussion on pp. 22-23.

42

4. THE INTERNAL ORGANIZATION OF UNIVERSITIES

to define, it is closely correlated with objective measures of quality. As a first approximation, it would appear that the prestige of a department reflects the research accomplishments of its faculty members and the strength (i.e., the highest degree offered, the number of students en¬ rolled, the placement record of its Ph.D.’s) of its graduate program. Research and publication, of course, are the traditional vehicles of scholarly advancement. The most prestigious scholars in a field are invariably those who are known for their books, articles, and experi¬ ments, and the departments to which they are attached acquire similar prestige.8 Over and above this, however, comes the prestige that ac¬ crues from having a strong graduate program and from training Ph.D.’s who go on to become productive scholars in their own right. Graduate students are also desired because as research assistants they contribute in important ways to faculty research. Similarly, they may be used as teaching assistants, reducing faculty teaching requirements and leaving them more time for research interests. As a result, departments that do not already offer the doctorate fight hard to gain administrative ap¬ proval to do so, while departments with small graduate enrollments often fight to expand their existing programs. The attempts of a department to increase its prestige are con¬ strained by the funds that it has available. Hiring prestigious faculty is expensive because they are often in short supply.9 Moreover, attracting them to a low-quality department may require additional incentives (monetary or otherwise) to compensate for their moving from an in¬ stitution or department of higher prestige. Additional new faculty may have to be imported in order to provide more stimulating colleagues, and the opportunity to teach only a small number of courses may have to be guaranteed, both of which are likely to be quite costly.10 Simi8 For a further discussion of these points, see Chapter 6. 9 George Stigler (1963, p. 37) has gone so far as to propose the following law: “That there are at most fourteen really first class men in any field, and more commonly there are six.” Despite his exaggeration, the number of highly qualified faculty in many fields is in fact quite small, and leads to high salaries for many of them. Correlations of faculty salaries with departmental quality confirm this fact (National Science Board, 1969, p. 85; Cartter, 1966, p. 84). Note that the correlations are especially strong for full professors, but decline systematically for the lower ranks. If prestigious departments are paying assistant professors no more than they would receive at schools of lesser renown, but are receiving candidates of higher quality, this means that they are actually paying a lower effective price. 10 On the other hand, departments of lower quality can be much more flexible in their efforts to attract prestigious faculty, and can offer a variety of inducements and special deals (e.g., reduced teaching loads, higher salaries, expanded facilities, etc.). Such deals

COMPETITION FOR FINANCIAL RESOURCES

43

larly, efforts to upgrade B.A. programs to M.A. status or to expand master’s programs to the doctoral level typically require additional funds for faculty and facilities. Graduate students, especially those enrolled in doctoral programs, often require heavy financial aid. As a result, departments that desire to increase their prestige—be it through the hiring of more prominent faculty, the creation of master’s or doc¬ toral programs, or the expansion of existing graduate programs—must attract more funds. In general, those funds will be provided by either of two sources: (a) by the administration through the budgeting process, or (b) by outside parties, generally in the form of research grants and contracts. For most departments, however, internal funds are far more important. How, then, does a department convince the administration that it deserves additional funds? How are faculty slots allocated among dif¬ ferent departments? What variables are under departmental control, and what influences the decisions of administrators? Considerations of equity appear to dominate the allocation pro¬ cess.* 11 Equity refers to efforts by the administration to treat all depart¬ ments as equally as possible in order to minimize internal conflict. As Cootner points out, there is a large political element in the relations between the administration and the faculty, and administrators try hard not to antagonize their “constituency.”12 Faculty members, after all, always have the option of leaving the institution should they become dissatisfied.13 This is especially true of the most prestigious faculty and

are much more difficult to arrange in departments of high quality because the existing faculty members, many of whom are also of high prestige, would expect similar treatment for themselves. In more formal terms, departments of lower quality are able to make more impressive offers, at the margin, to attract highly qualified faculty without upsetting their existing faculty price schedule. (This is so because the existing faculty members are viewed as qualitatively different from those that the department hopes to attract.) Similar offers could be made at a department of high quality only if the price (salary) of intramar¬ ginal units was also raised (because the existing faculty members, themselves of high prestige, see no reason why a “new hire” should be accorded special treatment). This theory is tested empirically in Chapter 5. 11 See Duncan (1976) and Duncan, Radner, and Wise (1977). 12 Cootner (1974). 13 Whether faculty members do, in fact, move to other institutions when they be¬ come dissatisfied with the existing allocation scheme depends on a number of factors. Of these, the two most important are their loyalty to their present institutions and the extent to which they can voice their dissatisfaction with the existing scheme and expect to receive some response from the administration. For a general discussion of these alterna¬ tives, often termed “exit, voice, and loyalty,” see Hirschman (1970).

44

4. THE INTERNAL ORGANIZATION OF UNIVERSITIES

those in the strongest departments, for they are always in demand at other colleges and universities. In pursuit of an equitable distribution of faculty and funds, most administrations allocate faculty positions in rough correspondence to the teaching needs of each department (i.e., on the basis of the number of undergraduate and graduate student credit hours amassed in courses taught by the department).14 Although teaching loads per faculty member vary considerably across departments—differences that tend to persist over time—increased enrollments in any given department normally lead to its receiving additional funds for faculty. New faculty positions are desired by departments because they permit broader cov¬ erage of subfields within the discipline, offer the opportunity to attract promising junior faculty or well-known senior people, and serve gener¬ ally to enhance departmental prestige.15 As a result, departments may pursue increased budget allotments by rapid expansions of their under¬ graduate or graduate enrollments, thus generating an internal demand for more faculty. Undergraduate and graduate enrollments, however, respond to quite different forces, and require different responses from a department.

Undergraduate Programs Undergraduate admission is controlled by the central administra¬ tion, with little input from individual departments. The proposed fields of study of prospective freshmen play a relatively minor role in the selection process, largely because incoming students are initially ex¬ posed to a broad core curriculum and only select a major field of study in their second or third years. As a result, departments are forced to compete with one another annually to attract students to their disci¬ plines and to influence their choice of courses, in order to maintain the department’s share of the overall academic budget. Of course, many departments are interested in attracting under¬ graduates for reasons other than their importance in securing funds from the administration. In many, often less technical, fields, a “gen¬ eral education” ethos prevails—an attitude that strongly emphasizes the importance of undergraduate education. In these cases, graduate and undergraduate students are regarded as equally desirable by de14 Duncan (1976) and Duncan, Radner, and Wise (1977). 15 Not surprisingly, the most prestigious departments in many disciplines are also the largest. See National Science Board (1969, p. 99).

COMPETITION FOR FINANCIAL RESOURCES

45

partments, and the number of undergraduates taught enters explicitly into the departments’ preference functions. In other departments, how¬ ever, the emphasis is almost entirely on graduate education because the teaching of undergraduates is often viewed as uninteresting, requiring only simplified concepts and elementary technical material. In those fields, departments display a derived demand for undergraduates, a demand arising primarily from their desire for increased resources and a larger faculty, and only secondarily, if at all, from a desire to engage in undergraduate instruction. The existence of that demand, coupled with the interest of other departments in educating large numbers of undergraduates, lends further support to the inclusion of aggregate en¬ rollments (quantity) as an argument in the university’s utility function. The choice of major field by undergraduates is far more responsive to broad socioeconomic and cultural trends than it is to the appeals of particular departments. As a result, the number of undergraduates en¬ rolled in a department in any given year is difficult to predict, and is subject to considerable uncertainty over time. While trends in field choice are easy to identify, they may be of long or short duration. Some are transitory and disappear within one or two years, while others endure for much longer periods. This raises difficult problems for ad¬ ministrators who must allocate faculty positions with several-year con¬ tracts (and, consequently, a large fixed component) in an atmosphere of considerable uncertainty. In addition, enrollment trends have impor¬ tant implications for departmental behavior. First, consider an institution with fixed aggregate enrollments. Any major shifts in undergraduate fields of concentration would benefit some departments at the expense of others, lending a zero-sum quality to the allocation of funds and faculty. In those circumstances, depart¬ ments might attempt to expand their enrollments without appealing directly to undergraduates. They might, for example, insert several of their own courses into the required core curriculum, guaranteeing themselves a substantial budget allotment on the basis of the large number of undergraduates taught there.16 This “guarantee” would in16 Such a policy often involves indirect competition with other departments. Be¬ cause there is generally an upper limit to the number of required courses in any core curriculum, the acceptance of one department’s courses often requires the rejection of another’s. As a result, securing approval for the inclusion of a new course in the required core curriculum also takes on many aspects of a zero-sum game. Even when a core curriculum is first being designed, game theoretic issues are important. This is especially true when different disciplinary groups (e.g., the sciences and the humanities) hold con¬ flicting views of what an ideal core curriculum should include.

46

4. THE INTERNAL ORGANIZATION OF UNIVERSITIES

sulate departments somewhat from the uncertainties of students’ choices of field. The allocation decisions of the administration would also be af¬ fected by the high level of uncertainty. Because the popularity of dif¬ ferent fields among undergraduates shifts over time, administrators would respond to increased enrollments in a discipline (and the accom¬ panying decline in enrollments in other disciplines) with a considerable time lag, waiting to be sure that they were observing a genuine trend, and not simply statistical noise. When they did react, the response would usually be to allocate additional junior faculty members (i.e., instructors, lecturers, and assistant professors) to the department, with contracts of relatively short duration. Senior faculty positions carrying tenure would seldom be awarded on the basis of short-term fluctuations in a department’s undergraduate enrollments, for such positions are long-term investments that would increase the fixed costs of the uni¬ versity for an extended period. Now consider an institution experiencing a steady increase in undergraduate enrollments. In those circumstances, short-term varia¬ tions in the popularity of different fields would be less important to departments, for a sufficiently rapid increase in aggregate enrollments is capable of offsetting a loss of popularity. Because of the influx of new students, new faculty positions could be gained even though a depart¬ ment was suffering a relative decline in popularity when compared with other departments. Departments, then, face fewer risks from shifts in undergraduate preference when aggregate enrollments are increasing, and are likely to support such a policy, especially if they desire to increase their prestige by attracting additional faculty members. Administrators, too, have more flexibility when their institutions are experiencing rising enrollments, and face fewer risks when allocat¬ ing faculty positions. When aggregate enrollments are fixed, adminis¬ trators must react cautiously to shifts in undergraduate preferences, making sure that they do not award faculty positions in response to merely transitory phenomena. This often leads to temporary imbal¬ ances in the teaching loads of different departments, and may generate dissatisfaction among students and faculty. In a rapidly growing institu¬ tion, this is much less of a concern because even if the observed growth of enrollments in a field reflects only temporary popularity, the influx of new students to the institution is likely to cushion any subsequent decline in enrollments that the department might suffer. As a result, the administration can respond to shifts in enrollments with much shorter

COMPETITION FOR FINANCIAL RESOURCES

47

lags.17 Similarly, a department is more likely to secure senior positions under these circumstances. With rising aggregate enrollments, the addi¬ tion of tenured slots is considered perfectly appropriate, for it reflects the institution’s long-run commitment to a larger size. Rising undergraduate enrollments, then, are desired by depart¬ ments because of their indirect contribution to departmental prestige. New faculty positions, which are desired because they permit broader coverage of subfields and lead generally to a stronger department, are easier to secure. In particular, senior faculty positions, which are es¬ sential if the department wishes to attract distinguished scholars from other institutions and to improve its prestige as rapidly as possible, are more likely to be secured if the institution as a whole is experiencing rising enrollments.

Graduate Programs Graduate admissions, by contrast, are more decentralized, and are subject to greater departmental control. Prospective students apply directly to their departments of interest, rather than through a univer¬ sitywide admissions committee. Most departments have considerable leeway in determining the size of their graduate programs, although once again they are constrained by the availability of funds.18 The most important difference between undergraduate and graduate programs, 17 The importance of growth as a means of reducing internal conflicts in an organi¬ zation has been succinctly summarized by Anthony Downs (1967): Growth tends to reduce internal conflicts in an organization by allowing some (or all) of its members to increase their personal status without lowering that of others. Therefore, organizational leaders encourage expansion to maximize morale and minimize internal conflicts. Every bureau’s environment changes constantly, thereby shifting the relative importance of the social functions performed by its various parts, and resources appropriate to each part. Such shifts will be resisted by the section losing resources. But these dissensions can be reduced if some sections are given more resources without any losses being experienced by others [p. 17]. The relevance of this analysis to academic budgeting in the face of shifting undergraduate preferences should be clear. 18 In recent years, a number of administrations have established maximum allowable graduate enrollments in an effort to curb the expansion of expensive graduate programs. While these enrollment ceilings have become more prevalent during the financial crunch of the 1970s, they were less common during the 1960s, the period of major interest for the empirical analysis of Chapter 5.

48

4. THE INTERNAL ORGANIZATION OF UNIVERSITIES

however, is the role that the latter play in producing departmental prestige. As Breneman points out, a department’s prestige is enhanced by a record of placing its new Ph.D.’s in positions at well-respected colleges and universities.19 Correspondingly, departments struggle to minimize their output of low-quality Ph.D.’s in order to maintain a reputation for quality within the academic community. The placement record of a department’s undergraduate products, however, is much less important to its prestige.20 As a result, departments are far more sensitive to the quality of their master’s and doctoral candidates than they are to the quality of their undergraduate students. At the same time, departments pursue large graduate enrollments in order to increase their share of the academic budget.21 Most univer¬ sities weight graduate students more heavily than undergraduates when allocating funds, so that departments with relatively large graduate programs receive heavy support. While these weighting schemes ap¬ pear to correspond reasonably well to differences in average costs, they do not necessarily reflect marginal costs of operation.22 Most graduate programs could be expanded with little increase in their total costs, through the slight expansion of most courses.23 Few new faculty or facilities would be required, except perhaps in the sciences, where 19 Breneman (1970a). Also, see Brown (1967, p. 120). 20 This is true only of universities. The elite liberal arts colleges, for example, often judge themselves on their record in placing undergraduates in high quality graduate programs, while other liberal arts colleges often judge themselves by the occupational placement of their undergraduates. Even in universities, departments pay attention to the placement of their undergraduates, although that record contributes little prestige when compared to the placement of graduate students. 21 As Breneman (1970a) points out, attrition rates are largely subject to departmental control. He goes on to show that graduate enrollments and the number of doctorates produced do not necessarily move together because of a department’s ability to adjust attrition rates in response to market forces. As a result, departments are able to expand their graduate enrollments while still maintaining an output of only high quality Ph.D.’s. 22 See Fogel and Mitchell (1974, pp. 475-476) for a discussion of possible deviations of marginal and average costs. 23 In many departments, expansion appears to be limited more by the required core curriculum than by any other factor. Departments often require all graduate students in their programs to pass a certain set of courses. Because many of them are unwilling to “double track” (i.e., to offer the same courses twice during the year, or at two different times during the same semester), the capacity of those courses places a ceiling on enroll¬ ments. In economic terms, the problem is one of indivisibilities. Marginal additions to enrollment contribute little in the way of additional costs until the capacity constraint is reached. Beyond that point, any increase in enrollment requires the duplication of exist¬ ing core courses, and hence, a large increase in costs.

COMPETITION FOR FINANCIAL RESOURCES

49

additional laboratory space might be needed to accommodate new stu¬ dents.24 As a result, departments may see expanded graduate enroll¬ ments as a means of attracting additional funds, funds often in excess of the increased costs of operation. These “profits” could then be used for expanded facilities, higher salaries, and similar purposes. In addition, many departments desire graduate students for the services that they perform. A growing graduate program contributes an inexpensive source of teachers, often reducing faculty teaching loads because a graduate teaching assistant can perform many of the func¬ tions of a faculty member. Similarly, graduate students may serve as research assistants on faculty research projects, eliminating the need to hire nonuniversity personnel. In each case, the wages paid to graduate students are likely to be lower than their marginal products—and, con¬ sequently, lower than the costs of hiring additional faculty or research staff—because teaching and research experience are viewed as neces¬ sary parts of a graduate education.25 As a result, departments display a derived demand for graduate students based on their teaching needs and the extent of their research programs. We see, then, that departments are often anxious to create and expand graduate programs, and that both the quality and quantity of students are considered to be important. This lends further support to the inclusion of those terms as arguments in the university’s utility function. The technical relations governing departmental growth, how¬ ever, have not yet been explained. Why, for example, do departments decide to first offer graduate programs at a particular time? Why are some departments able to expand their graduate enrollments more rap¬ idly than others? How does a department go about increasing its pres¬ tige? Does the behavior of a department differ by type of university? The three major constraints on a department’s ability to create or expand a graduate program are (a) the number of qualified applicants it can attract, (b) the size of its teaching staff, and (c) the availability of financial aid for incoming students. Its ability to attract qualified stu¬ dents in sufficient numbers depends on the prestige of its faculty and on its financial aid offerings. (There is a certain simultaneity here, for a department’s ability to attract graduate students depends partly on its

24 According to a 1959-1960 survey of graduate deans at over 100 institutions, the supply of Ph.D.’s in a wide variety of fields was not constrained by limited academic facilities. Instead, the deans cited inadequate fellowship support and limited student housing as the major constraints. See Chase (1961, part 2). 25 For a general discussion of these issues, see Dresch (1974, pp. 28-29).

50

4. THE INTERNAL ORGANIZATION OF UNIVERSITIES

prestige, while its prestige depends partly on the size and strength of its graduate program. This has the effect of further intensifying the desire for increased prestige.) A faculty of sufficiently large size is required in order to insure broad coverage of subfields, diversity in course offer¬ ings, and a student-faculty ratio within manageable proportions. Oth¬ erwise, the department is faced with the task of convincing the adminis¬ tration of the need to acquire additional faculty or with the prospect of a sharp increase in teaching loads. Financial aid, on the other hand, is important in attracting graduate students—especially those of high quality—since some form of support has traditionally been awarded to the more qualified students.26 This aid can take a number of different forms and may vary significantly by type of department or university. Three forms of graduate financial aid are usually available: (a) fellowships or scholarships, (b) research assistantships (RA), and (c) teaching assistantships (TA). The former are outright grants of money awarded by the department, the university, or outside sources, and typically include some combination of tuition support and stipends. RA and TA support, on the other hand, are payments for services. Re¬ search assistants generally work on faculty research projects of some sort, while teaching assistants are often assigned to large lecture courses where they grade papers and exams, teach small sections, and counsel students. Science and engineering departments face less binding constraints in this area than do their counterparts in the humanities.27 Because of the large infusion of federal funds into academic science in the postwar period, substantial sums have become available for the support of graduate students. A variety of fellowship and traineeship programs, geared to selected science fields, have been established. Similarly, sponsored research projects often employ a number of students as 26 This applies more to doctoral candidates than it does to students enrolled in master’s programs. Note that the availability of financial aid has the effect of reducing the costs of graduate education and raising the present discounted value of investing in it. As a result, increased student financial aid should stimulate enrollments. See Freeman (1971) and Breneman (1970a) for further discussions of these issues. 27 Science and engineering departments are contrasted with those in the humanities in order to emphasize the most important differences in financial aid patterns. Social science departments, which are not discussed explicitly, are something of an intermediate case. They have more outside support and sponsored research than the humanities but less than the sciences, more fellowship aid than the humanities but less than the sciences, and so on. As a result, they fall somewhere between the other two categories for the purposes of this discussion.

COMPETITION FOR FINANCIAL RESOURCES

51

research assistants. A department with a large volume of sponsored research—typically a department of high prestige—is able to support many of its graduate students in such positions. In addition, large basic science courses provide many teaching assistantships. Humanities departments have not been as fortunate. While outside fellowships are available, they are far fewer than in the science and engineering fields. Scholarly research is less often funded by outside sources, and even when it is, the nature of the research often precludes the hiring of a large number of research assistants. As a result, humanities departments must usually rely on internal funds for fellow¬ ship support or on TA positions in order to support graduate students. These differences in financial aid patterns have a number of impli¬ cations for the upgrading behavior of departments, and for their efforts to introduce or to expand graduate programs. First, expanding under¬ graduate enrollments are likely to be more important in supporting the expansion of graduate programs in the humanities than in other areas. An increased need (demand) for teaching assistants may be the critical factor in explaining the growth of graduate programs in these fields. Second, an increased volume of sponsored research is likely to be an important determinant of the growth of graduate programs in science and engineering because additional faculty and students could be sup¬ ported by such grants. Third, science and engineering departments of high prestige are likely to benefit disproportionately from these meth¬ ods of funding graduate education. Not only do such departments at¬ tract the highest caliber students (who are most likely to be the holders of outside fellowships and scholarships), they also attract a substantial share of all sponsored research and are able to offer a large number of RA positions.28 In fact, science and engineering departments of high prestige are likely to respond to a rising volume of sponsored research in ways very different from their less renowned counterparts. These departments, already well established and with long histories of graduate education, often see no need to expand their graduate programs as a means of generating increased prestige. At the same time, many of them, espe¬ cially during the late 1950s and early 1960s, were able, with relatively little effort, to attract large volumes of contract research. This, in turn, generated a demand for graduate students by these departments, a 28 For correlations of departmental prestige and the level of federal research funding, see Table 6.1 (Chapter 6). For correlations of departmental prestige and the number of graduate fellowship holders enrolled, see National Science Board (1969, p. 73).

52

4. THE INTERNAL ORGANIZATION OF UNIVERSITIES

demand motivated by their need for inexpensive research assistants. As a result, many of the most prestigious science and engineering de¬ partments expanded their graduate programs during this period.29 The less prestigious departments also expanded, but somewhat later, and for very different reasons. Many of them built up graduate programs in order to increase their prestige, to attract scholars of high quality to their departments, and to secure a larger volume of research funding. In part, such behavior can be viewed as a form of competitive emulation—an attempt to duplicate the activities of the more pres¬ tigious departments and institutions.30 The direction of causality, however, has been reversed. For the departments of high prestige, increased research funding led to a commensurate increase in the demand for graduate students as research assistants, and to the sub¬ sequent expansion of graduate programs. At the less prestigious depart¬ ments, expanding graduate programs served as a vehicle for attracting a larger and more qualified faculty, greater prestige, and, only later, a larger volume of sponsored research. After having secured the addi¬ tional research funding, many of these departments used the money to attract higher quality graduate students through more lucrative RA offers, rather than seeking to further expand their graduate enroll¬ ments. Similarly, variations in patterns of graduate financial aid help to explain differences in the behavior of institutions in the aggregate. Dur¬ ing the 1960s, many of the elite private universities expanded their undergraduate enrollments very little, preferring instead to emphasize student quality. At the same time, many public universities expanded dramatically, rapidly increasing the size of their undergraduate popula¬ tions. On the basis of the preceding analysis, we would expect to see significant differences in the behavior of these two types of institutions. According to Dresch, Growth in public institutions is probably accounted for by increasing under¬ graduate enrollment, with graduate students then acting as apprentices in teaching; growth in private institutions, on the other hand, is probably domi¬ nated by increased research support, with derivative support for expanded graduate programs.31 29 This discussion suggests a considerable complementarity between the number of faculty, the number of graduate students, and the volume of sponsored research. See Dresch (1974) for a more complete analysis. 30 For a general discussion of competitive emulation in higher education, see Riesman (1956). 31 Dresch (1974, p. 35).

THE ROLE OF PROGRAM COST AND PRESTIGE IN BUDGETING DECISIONS

53

Elite Private Institutions (with stable undergraduate enrollments): $ of sponsored research f —* demand for RA’s | —> number of graduate students enrolled in the department f —» teaching loads j —* number of faculty positions budgeted by the administra¬ tion | —> prestige of the department f Public Institutions (with stable research volume): undergraduate enrollments in the department f -» teaching loads f —> demand for TA’s | —► number of graduate students enrolled in the department | -» teaching loads f

number of faculty

positions budgeted by the administration f —* prestige of the department f

Figure 4.1

The growth of graduate programs at public and private universities.

That is, at the elite private institutions, graduate financial aid would be funded largely through sponsored research and research assistantships, while at the rapidly expanding public institutions, graduate financial aid would come largely in the form of teaching assistantships. The analysis has two additional implications for the upgrading behavior of depart¬ ments. First, because of the critical role of sponsored research, we would expect to see a particularly rapid expansion of graduate pro¬ grams in science and engineering at the elite private institutions, rela¬ tive to other departments at those same institutions and to departments in the same field at different universities. Second, because of the need for teaching assistants, we would expect to see a more rapid growth of graduate programs at the expanding public universities in those de¬ partments experiencing particularly sharp increases in undergraduate enrollments. Figure 4.1 illustrates the two cases schematically, and points to the different processes at work. (Of course, most institutions fall somewhere between these two polar cases, and combine some elements of both.)

THE ROLE OF PROGRAM COST AND PRESTIGE IN BUDGETING DECISIONS The preceding discussion dealt with the efforts of departments to expand their sizes and to increase their prestige through growth in undergraduate and graduate enrollments. These efforts are predicated on the notion that principles of equity govern the allocation of faculty, and that administrators respond to increases in a department’s enroll¬ ments by budgeting additional faculty positions. Other considerations, however, are also weighed by the administration when allocating fac¬ ulty positions; of these, efficiency and prestige appear to be the most important.

54

4. THE INTERNAL ORGANIZATION OF UNIVERSITIES

The administration, after all, is responsible for protecting the fi¬ nancial health of the university, and often pays special attention to con¬ taining costs. Trends in instructional expenses are closely monitored at many institutions, and those departments that are regarded as espe¬ cially inefficient may be disciplined through budget cuts. This, however, is a relatively recent phenomenon. Prior to the 1970s few institutions paid much attention to cost control; many, in fact, had no systematic budgeting procedures at all. In addition, the extreme difficulty of measuring and monitoring educational outputs and of comparing the productivity of different departments makes determining efficiency a slippery process at best. Administrators do, however, respond to certain obvious differ¬ ences in the costs of upgrading different departments. Other things being equal, a cheaper program is more likely to be accepted than one that requires a larger increase in the budget. For this reason, science and engineering departments often have a distinct advantage over those in the humanities, for they are able to draw upon funds from outside the university. By charging some proportion of a faculty member’s salary to spon¬ sored research, science and engineering departments can partially fi¬ nance their expansions from nonuniversity funds. As a result, they need smaller allotments from the administration for such expansions than do the nonscience departments.32 In effect, the availability of funds for academic science changes the relative price of upgrading departments in different disciplines. Science and engineering departments, drawing on fewer internal funds, are more likely to be upgraded by the adminis¬ tration.33 A further implication of this analysis is that we would expect 32 This analysis, of course, applies only to those institutions that allow departments to charge some proportion of faculty salaries to contract research. For those that do not, the existence of sponsored research would have no effect on the relative price of adding new faculty to different departments. 33 The theory presented here should be contrasted with that of Pfeffer and Salancik (1974), whose emphasis is quite different. Using the University of Illinois as a case study, they argue that subunit (department) power, as measured by interview assessments and representation on key university committees, plays an important role in determining a department’s budget share, even after controlling statistically for the independent effects of department size, national rank, and costliness of the program. In a later article, Salancik and Pfeffer (1974) go on to show that the ability of a department to attract outside funding is the best predictor of subunit power. While their analysis is largely sociological, their results have a straightforward economic interpretation. The relative price of faculty and programs in those departments able to tap outside sources of funds (primarily contract research) is lower than it is for other departments. Not surprisingly,

THE ROLE OF PROGRAM COST AND PRESTIGE IN BUDGETING DECISIONS

55

to see a higher incidence of newly created master’s and doctoral pro¬ grams in particular science fields during their periods of most rapid growth in research funding, again because of differences in relative prices. In all of these examples, an analysis based on the internal orga¬ nization of universities and on the budgeting rules used by the adminis¬ tration yields the same predictions as the utility maximizing model, providing further support for that approach. Finally, university budgeting is often guided by the administra¬ tion’s desire for institutional prestige.34 Like faculty members, adminis¬ trators prefer to be associated with institutions of lofty reputation— reputation that is often gained through high quality graduate and pro¬ fessional programs. This is an especially important consideration in institutions already possessing high prestige and in those attempting to improve their overall reputations rapidly. In either case, a concern for prestige may lead to budgeting decisions that temporarily violate the usual standards of equity and efficiency. In technical terms, the problem is one of indivisibilities. In order to upgrade a department in a short period of time, a number of new faculty must be secured, preferably senior faculty already possessing consid¬ erable prestige. For a department of low quality or declining reputation, there are often real difficulties in attracting such scholars. Many are deterred by the department’s poor reputation or by the absence of suitable colleagues. In order to overcome these difficulties, the admin¬ istration often allocates a block of new positions to a department that it wishes to see upgraded, with some combination of senior and junior posts, as well as a department chairmanship, made available. The number of new positions, however, seldom bears any relation to shifts in the department’s undergraduate or graduate enrollments; instead, it reflects a critical mass phenomenon, the perception that introducing a group of new faculty members en masse is the only way to turn a lagging department around. This analysis still leaves a number of questions unanswered. When, for example, does the administration decide that considerations of institutional and departmental prestige are sufficiently important to

the administration often favors those departments in internal budgeting because the actual costs of their programs, once outside sources of funds have been factored in, are typically lower than those of other departments. A department’s power, then, may sim¬ ply be a reflection of the low price of its programs. 34 See Chapter 3, Note 15.

56

4. THE INTERNAL ORGANIZATION OF UNIVERSITIES

overrule the usual budgeting standards of equity and efficiency? Why are some departments upgraded and not others? Do administrators act selectively, improving the quality of their institution on a departmentby-department basis, or do they operate on many departments simul¬ taneously? To what extent can a department increase its prestige independently, and to what extent is the process controlled by the administration? Departments may be upgraded for a number of reasons. The admin¬ istration may view prestige in particular departments as fundamental to the institution’s overall reputation.35 This appears to be an important rationale for upgrading departments in the traditional and longestablished disciplines of the humanities and the social sciences. On the other hand, some departments, notably in science and engineering, may be upgraded primarily because their higher prestige will then attract increased income for the university in the form of grants and contracts. Groups of departments may be upgraded together because of a com¬ plementarity in the inputs they require. The construction of expensive biology laboratories, for example, might lead to a simultaneous upgrad¬ ing of the biology, biochemistry, botany, microbiology, and zoology departments, while a rapidly expanding humanities library might aid in efforts to attract prestigious scholars in a variety of humanities fields. These complementarities are often said to exist for faculty as well, with academic strength in one field thought to require the presence of strong departments in closely related disciplines.36 As a result, we might ex¬ pect to see certain groups of departments (e.g., economics and political science, biochemistry and chemistry) being upgraded together.37 Institutions already possessing high prestige face the additional problem of “prestige maintenance.” The departure (through resigna-

35 In terms of the utility maximizing model presented earlier, this would mean that the partial derivative dprldpr' was especially large. 36 See Cartter (1966, p. 106). Evidence from his 1964 survey of graduate programs provides qualified support for this theory. For a contrasting view, see Stigler (1963). 37 In part, this reflects the nature of communication networks within the university and the fact that closely related departments are better informed about one another than they are about other departments. In addition, a concern for equity is much more impor¬ tant in the administration’s dealings with closely related departments than it is in dealings with departments in totally unrelated disciplines. As a result, efforts to upgrade only a single department within such a group are likely to create considerable dissatisfaction and resistance among these other departments. Because of these “political” considerations, administrators often prefer to upgrade departments in groups.

THE ROLE OF PROGRAM COST AND PRESTIGE IN BUDGETING DECISIONS

57

tion, retirement, or death) of even one or two distinguished faculty members, especially in smaller departments, may precipitate a serious decline in quality, often inducing other promising scholars to depart as well.38 In those cases, a department may be unable to recapture its former prestige without special efforts by the administration. Such ef¬ forts usually take the form of the administration’s installing a new department chairman, usually a respected senior faculty member im¬ ported from outside the institution, and its then making available sev¬ eral new faculty positions at both junior and senior levels. Again, the problem is one of indivisibilities. Only by awarding the department several new positions simultaneously—even if those positions are not justified by changes in the department’s undergraduate or graduate enrollments—can the administration hope to overcome a sagging repu¬ tation. In essence, the administration represents the supply side of the internal allocation process. Departments demand increased funds for faculty and facilities and attempt to convince the administration of the validity of their requests. Increased undergraduate or graduate enroll¬ ments, a need to increase prestige by upgrading faculty, or the large allocations received by closely related departments may all be cited as justifications for a larger budget. The administration must weigh these requests against considerations of equity, efficiency, and prestige in order to determine the amount of funds it will supply to each depart¬ ment. Of course, the administration can also act independently, increas¬ ing a department’s budget and awarding it new faculty in order to reverse a decline in quality or to revive a moribund department. While the relative weights placed on equity, efficiency, and pres¬ tige will vary for different administrations, and for the same adminis¬ tration over time, some generalizations can be made. First, during pe¬ riods of prosperity, with institutional revenues steadily rising, less attention will be paid to efficiency and more to considerations of quality

38 There is a clear analogy here to Thomas Schelling's (1969) notion of “neigh¬ borhood tipping.” According to that theory, the racial composition of a neighborhood can often shift dramatically from all-white to all-black once a critical “tipping point” (a particular racial mix) is reached. Depending on the distribution of preferences for neigh¬ borhood composition, the entry or exit of even a small number of people of one race can precipitate a chain reaction, prompting mass migrations by one or the other group. A similar argument can be made about shifts in department quality, with the entry or exit of a nucleus of prestigious faculty leading to dramatic upgrading or downgrading of the department.

58

4. THE INTERNAL ORGANIZATION OF UNIVERSITIES

and prestige.39 In the absence of financial pressures, university ad¬ ministrators will focus on other matters.40 During these periods we would expect to see a rapid growth in the number and size of graduate programs. In the language of the utility maximizing model, relaxation of the budget constraint leads, through income effects, to increased prestige. Second, when faced with choices having comparable effects on equity or prestige, the administration is likely to select the least costly alternative. That is, if its primary goals are realized by several different allocations, the administration will rely on efficiency consid¬ erations to make its choice.41 Third, in their efforts to upgrade their institutions, administrators are especially attracted to strategies that promise an immediate return. In particular, they tend to seek out “names”—distinguished scholars whose presence will immediately contribute greater institutional prestige. Departments, on the other hand, often prefer somewhat younger men when building up their pro¬ grams and are willing to wait a bit longer for increased prestige.42 Departments generally initiate proposals to create or expand grad¬ uate programs, petitioning the administration to secure its approval to acquire the necessary funds. These requests will only be made if the department sees some likelihood of them being accepted, because no department wants to lose face with its colleagues, lose credibility with the administration, or damage its reputation for reasonable requests. Departmental budgeting, after all, recurs annually; a bad impression, once created, can affect funding over an extended period.43 This tends to limit the demands of departments, and to further underscore the importance of equity as a budgeting rule. 39 According to Cartter and McDowell (1975, p. 54): “In a period of relative afflu¬ ence academic institutions attempt to maximize their prestige by hiring at middle and upper ranks prominent or promising professors from other institutions.” 40 This argument is analogous to Williamson’s discussion of syndrome behavior (i.e., the shift of corporate managers from profit maximizing to utility maximizing modes, depending on the economic environment they currently face). See Williamson (1970, chapter 5). 41 This view of university decision making draws on the organizational theories of Herbert Simon (1970). He notes, for example, that it is doubtful whether decisions are generally directed toward achieving a goal. It is easier and clearer to view decisions as being concerned with discovering courses of action that satisfy a whole set of constraints. It is this set, and not any one of its members, that is most accurately viewed as the goal of the action [pp. 276-277]. 42 Caplow and McGee (1958, p. 159). 43 The argument here parallels Wildavsky’s (1974) discussion of the strategies em¬ ployed by federal agencies in bringing their budget requests to Congress, for there, too, budgeting is an annual affair.

IMPLICATIONS AND PREDICTIONS

59

The existence of accrediting organizations, visiting committees, and similar evaluative bodies places an additional constraint on a de¬ partment’s ability to create or expand graduate programs.44 Their exis¬ tence reinforces the norms of departmental budgeting and further limits “unreasonable” requests by departments, for few administrations are willing to support programs that do not meet the standards of these organizations. As a result, most departments are unlikely to propose the creation or expansion of master’s or doctoral programs unless they have already attained sufficient size or strength to insure an acceptable program. This suggests that doctoral programs will not be offered until departments have attained some critical size—a size that is likely to vary considerably by discipline. In summary, there are important technical relationships governing the university’s internal allocation process. A department’s prestige, the size of its teaching staff, the number of undergraduate and graduate students enrolled, and the volume of sponsored research are all closely connected. An analysis of the university’s internal organization yields important insights into its behavior, many of which could not be de¬ rived from the utility maximizing model presented earlier. The analysis does not, however, require us to reject that model because the two approaches are, in fact, complementary. The utility maximizing model is quite abstract and necessitates a high level of aggregation, while the analysis of internal organization is more detailed and views university operations through a finer filter. As such, the two approaches are de¬ signed to answer different questions and to provide different insights, with the former taking a more macroorganizational view and the latter a more microanalytic perspective.

IMPLICATIONS AND PREDICTIONS The financial plight of American colleges and universities has re¬ ceived much attention in recent years, with most analysts pointing to 44 See Selden (1960) and U.S. Office of Education (1959) for discussions of accredita¬ tion. In the United States, six regional accrediting agencies are responsible for certifying institutions, while a variety of professional societies also perform accrediting activities for their respective disciplines (chemistry, engineering, law, library science, clinical and counseling psychology, dentistry, etc.). Visiting committees, on the other hand, are often ad hoc groups of invited scholars who review the performance of a particular department. Their recommendations generally carry much less force than those of accrediting associa¬ tions.

60

4. THE INTEKNAL ORGANIZATION OF UNIVERSITIES

two major sources of distress. First, the era of secularly expanding demand is coming to an end; it will soon be replaced by a period of no growth, with a steady decline forecast for the immediate future.45 At the same time, federal and state governments have become less willing to supply the increased funds demanded by institutions of higher edu¬ cation, and have cut back their support (in real terms). As a result, a number of universities are in serious financial trouble and educators have called for a variety of reforms.46 In this section, I will consider the implications of these trends for the future of higher education, paying special attention to issues of institutional quality. The 1950s and 1960s were periods of spectacular growth and im¬ provement for many colleges and universities. Motivated by a desire for greater prestige, institutions added a multitude of graduate and professional programs, increasingly emphasized student quality, and sharply upgraded the quality of faculty in many departments. As the preceding analysis has shown, these improvements were made possible by large jumps in aggregate enrollments and by increases in outside funding, usually in the form of contract research and other sponsored programs. Prestige maximizing behavior was a natural response to this climate of affluence and abundance, and institutional upgrading was the norm. The anticipated decline in aggregate enrollments, however, will create a very different economic environment, with important implica¬ tions for institutional upgrading. This environment strongly favors the major public universities and the elite private institutions. Because of their lower tuition, state universities are likely to gain an increasing share of undergraduate enrollments, and should continue to grow rela¬ tive to the private institutions. Rising undergraduate enrollments, in turn, can provide the impetus for larger graduate programs, more fac¬ ulty, and ultimately, greater prestige. These trends are reinforced by the existence of economies of scale in university operation. Most pri¬ vate institutions, on the other hand, are likely to find it increasingly difficult to upgrade, unless they focus narrowly on only one or two departments (what Stigler has called a policy of “selective emi-

45 For a summary of the evidence on these points, see Deitch (1977). Note that these predictions are aggregate effects based largely on the age composition of the population. Disaggregated effects (by region, by type of institution, etc.) are much more difficult to assess. For one attempt to estimate regional impacts, see McPherson (1978, pp. 152-153). 46 Cheit (1971) presents several case studies of institutions in financial distress.

IMPLICATIONS AND PREDICTIONS

61

nence”).47 The elite universities, however, are in the advantageous position of having departments of sufficiently high quality that both graduate and undergraduate students can usually be attracted in suffi¬ cient quantity and quality, even if tuition rises sharply.48 As a result, when faced with financial problems (e.g., those due to rapidly rising costs), they are better able to respond by raising tuition, and are less likely to cut programs or faculty salaries. This security, and the greater financial flexibility that it implies, gives these institutions a decided advantage in attracting and retaining scholars of high quality. Shifts in the funding of sponsored research should also alfect the choice of departments to be upgraded. A slower rate of real growth in research funding will make the upgrading of science and engineering departments increasingly expensive and increasingly unlikely at many institutions, for they will have to rely on internally generated funds to a much greater extent than in the past. This, of course, raises the price of increasing the prestige of these departments, and gives them less bar¬ gaining power with the administration. At the same time, upgrading is likely to become more frequent in the humanities. The current over¬ supply of Ph.D.’s in many of these fields will exert downward pressure on salaries, making the upgrading of humanities departments less ex¬ pensive and, consequently, more attractive to the administration. The upgrading of humanities departments, however, is likely to take a somewhat different form than that of the 1960s. During that time, de¬ partments often increased their prestige by hiring distinguished faculty away from other institutions and offering them senior positions. Today, with the oversupply of newly minted Ph.D.’s in many fields, depart¬ ments are likely to concentrate on the lower ranks, hiring promising young faculty and then promoting them internally as they gain in pres¬ tige.49 47 Stigler (1963). 48 Some evidence on this point is provided by Breneman (1975a, p. 38) who found that declines in federal support of graduate students led, in the most prestigious depart¬ ments, to sharp increases in the proportion of students who were primarily selfsupporting. At the same time, departments that were ranked slightly lower experienced a decline in the proportion of students who were self-supporting. Breneman hypothesizes that students might rationally prefer to attend the most highly rated departments even if no financial aid were offered (that is, even if they faced a higher effective price), while they might decline second-rung departments offering no financial aid in favor of those of lower rank that offered it. 49 Of course, this would be true only if humanities departments were not “tenured in.” In the event that no senior positions are available, young assistant and associate professors could not be promoted no matter how superior their performance as scholars.

62

4. THE INTERNAL ORGANIZATION OF UNIVERSITIES

What, then, will be the shape of the market to come? The preced¬ ing analysis suggests that there will be an increasing split between institutions of high prestige and those of lesser renown. As many state universities gain in prestige, the lower quality private institutions— especially the large urban universities—will be forced to resort to a service strategy, responding largely to the manpower needs of their local communities in an effort to remain competitive. That policy is likely to be pursued, rather than one of prestige maximization, because in the new economic environment, it will become increasingly expen¬ sive for such institutions to upgrade a significant number of depart¬ ments or to develop regional or national reputations. As a result, we are likely to see intensified marketing efforts and a proliferation of pro¬ grams geared to local needs.50 In the language of the utility maximizing model, these institutions will experience a tightening of their budget constraints and a shift in relative prices that favors student enrollments (quantity) over prestige variables. At the same time, institutions of high prestige are likely to remain of high quality. Prestige maintenance, after all, is much less costly and much easier to accomplish than is institutional upgrading. At the mar¬ gin, attracting prestigious faculty is less expensive at these institutions than at those of lower quality because of the nonpecuniary advantages that they possess. In fact, given the fall-off in student enrollments pre¬ dicted for the immediate future, we might anticipate an increased em¬ phasis on prestige at these institutions, with prestige maximization viewed as that form of product differentiation that will make them most competitive over the long run. As a result, the higher education market is likely to become in¬ creasingly segmented. The elite private universities are likely to remain of high prestige, as are the best public institutions. A number of state universities, blessed with growing enrollments, will be able to sharply increase their prestige. The lower quality public and private institu¬ tions, however, especially those in major urban areas, are likely to opt for a service strategy, emphasizing programs of wide appeal while paying less attention to institutional prestige.

30 See, for example, “Hard Hit Schools Turn to Marketers,” New York Times, January 22, 1978, section 3, p. 1; and, “The College Hustle,” Newsweek, April 3, 1978, p. 86.

Patterns of Institutional Improvement

The preceding chapters have considered a number of aspects of the behavior of institutions of higher education and have developed a number of specific hypotheses. After a general introduction to the higher education market and to the distinctive organizational features of universities, a utility maximizing model was presented and dis¬ cussed, followed by a more detailed analysis of the internal organiza¬ tion of universities. Both were based largely on anecdotal and institu¬ tional material—on interviews, historical studies, and various other qualitative descriptions of American higher education—with little in the way of systematic statistical evidence. The major purpose of this chapter is to round out the story by providing more extensive empirical support for those models, formally testing a number of important hy¬ potheses. Only one aspect of institutional improvement, however—the up¬ grading of faculty—will be considered in this chapter; the other major element, the spread of Ph.D. programs, will be reserved for a later discussion. The analysis here will focus on the behavior of individual universities and on differences in their methods of upgrading. Special attention will be devoted to differences between the public and private and the high and low prestige institutions. Departmental behavior will also be briefly analyzed in order to test some hypotheses about the importance and autonomy of these subunits of the educational firm. The plan of this chapter is as follows. First, a structural model (based largely on the theoretical analyses of Chapters 3 and 4) will be presented and discussed. Its properties will be sketched in some detail 63

64

5. PATTERNS OF INSTITUTIONAL IMPROVEMENT

since the model serves a valuable heuristic purpose, as well as giving a more complete picture of the determinants of university behavior. Parts of the model are later employed for hypothesis testing. In each case, the hypothesis under consideration is restated from the previous chapters, and then tested against the econometric evidence. The chap¬ ter concludes with a number of appendixes providing more detailed information on the variables used in the analysis.

A MODEL OF PRESTIGE IMPROVEMENT According to the utility maximizing model, an institution has two means of improving the prestige of its departments. On the one hand, it may seek to attract more eminent faculty than are now associated with the institution. The hiring of such scholars—men and women already possessing considerable prestige because of their publications and re¬ search accomplishments—is certain to improve an institution’s aca¬ demic standing. Their personal prestige translates directly into higher prestige for the departments (and, consequently, the institutions) with which they are associated. In order to attract such eminent faculty, an institution must usually offer them especially high salaries, as well as low teaching loads, ample research facilities, and other inducements. Alternatively, an institution may hire a large number of new fac¬ ulty members, increasing the average size of its departments. Even if these faculty members are of no higher quality than those presently associated with the institution, their hiring should lead to an increase in prestige. In general, a larger number of professors means increased research activity, with that research, in turn, stimulating an increase in publication. Because a department’s ratings are closely correlated with the publication record of its faculty, this increase in scholarly output should lead ultimately to higher prestige for the department. The above discussion suggests that increases in faculty salaries and increases in the number of faculty at an institution are important determinants of prestige improvements, and that both should appear with positive coefficients. An institution’s existing prestige may also affect its ability to improve its ratings. This is especially true of the most highly rated departments (institutions), which gain relatively little from the addition of new faculty members. Because these departments (institutions) are typically large and already contain eminent scholars in a variety of subfields, the addition of another well-known scholar is

65

A MODEL OF PRESTIGE IMPROVEMENT

likely to be viewed as only a marginal improvement, rather than as a major qualitative change. This is no more than another application of the law of diminishing returns, which states that as the amount of a variable input (in this case, eminent faculty members) is increased while all other inputs are held constant, a point is eventually reached where marginal product (in this case, increases in prestige) begins to decline. These relationships are all captured in equation (5.1), which relates changes in prestige to changes in faculty salaries, to changes in the number of faculty at the institution, to some measure of the institution’s prestige in an earlier period, and to a random disturbance term (ej. APrestige = /(AFaculty salaries, ANumber of faculty, Prestigef_i, ej;

fu f2 > 0, f3 < 0

(5.1)

According to the preceding discussion, the first two variables should be positively related to institutional improvement and the third should be negatively related. In addition, the analogy to the law of diminishing returns suggests that the effect of an institution’s existing prestige might best be represented by some nonlinear specification. In equation (5.2), the dependent variable is the increase in the number of faculty at an institution. ANumber of faculty = g(AUndergrad enrollments, AGrad enrollments, AEducation and general revenues, Z2, e2);

gu g2, g3 > 0

(5.2)

The analysis of Chapter 4 suggests that increases in the number of full-time equivalent undergraduate and graduate students enrolled should be strongly associated with increases in faculty size, especially at those institutions that follow rigid funding formulas when allocating faculty positions. Even at those institutions with less formal budgeting rules, increases in the number of undergraduate and graduate students are likely to lead to a larger faculty, because they produce higher student-faculty ratios, heavier teaching loads, and ultimately, increased pressures for expansion. Increases in education and general revenues, even when unrelated to increases in enrollment, can also lead to a larger faculty. An increase in education and general revenues is equivalent, in terms of the utility maximizing model, to a relaxation of the institution’s budget constraint.

66

5. PATTERNS OF INSTITUTIONAL IMPROVEMENT

As Chapter 3 pointed out, relaxation of the budget constraint leads, through an income effect, to the institution’s acquiring greater prestige. Since increasing the size of its faculty is one means of achieving pres¬ tige gains, we would expect to see increases in an institution’s educa¬ tion and general revenues positively associated with increases in the number of faculty at the institution. These relationships are summarized in equation (5.2), which re¬ lates changes in the number of faculty at an institution to changes in enrollments, to changes in the education and general budget, to a num¬ ber of unspecified exogenous variables (the vector Z2), and to a random disturbance term ta).1 Changes in faculty salaries can be explained in a similar fashion. Not only does an increase in education and general revenues permit an institution to increase its prestige through the hiring of new faculty, it also enables the institution to offer higher salaries (at the margin) in order to attract more eminent scholars. As before, a relaxation of the budget constraint leads most institutions to pursue increased prestige; in equation (5.3), this yields AFaculty salaries =

h( AEducation

and general revenues, ACost

of living, Z3, e3),

hu h2 >

0,

(5.3)

1 This formulation should be contrasted with the cross-sectional model of Radner and Miller (1975, chapter 7). They argue that the number of faculty at an institution is a function of the number of undergraduate and graduate students enrolled, with the faculty input coefficients (which relate the number of students to the number of faculty) them¬ selves being a function of institutional characteristics. More formally, they propose the following model: Number of faculty = au number of undergrads -I-

number of grads

a„= h0 -f hx institutional characteristics ag = ko +

institutional characteristics

In general, the institutional characteristics they specify in estimating the model are those commonly taken to reflect the quality or prestige of a college or university (e.g., average faculty salaries, the fraction of the faculty holding a Ph.D. degree, etc.). While this model gives generally good results and could easily be used to explore changes in faculty size (simply by taking first differences and then estimating the resulting equation), it is not well-suited to that purpose. In particular, it seems more appropriate for describing long-run (equilibrium) differences between institutions than for explaining short-run changes in student-faculty ratios. As a result, an alternative model has been employed.

67

A MODEL OF PRESTIGE IMPROVEMENT

a positive association between changes in education and general reve¬ nues and changes in faculty salaries. In addition, we might expect to see faculty salaries keyed loosely to changes in the (local) cost of living, to other exogenous variables (the vector Z3), and to a random disturbance term (e3). Equation (5.4) is the fundamental income identity that relates ex¬ penditures and revenues. Because most institutions appear to spend all the money they raise, this equation assumes that revenues and expendi¬ tures are identical, and deals only with the former. Education and general revenues are then separated into four major categories— income from student sources (of which the largest component is tuition income), government appropriations (which are typically zero for pri¬ vate universities), revenues from sponsored research, and other reve¬ nues (which include gifts, sponsored programs, endowment income, and miscellaneous sources of revenue not classified elsewhere). Each, in turn, has its own determinants.2 AEducation and General Revenues = AIncome from student sources + AGovernment appropriations + AResearch Revenues + AOther revenues (5.4) Increases in tuition income, for example, can be decomposed into two parts—those due to increases in tuition charges and those due to increases in the number of students enrolled.3 While tuition practices have not been discussed in any detail, it should be clear from Chapter 2 that most universities are more than simple price-takers. In fact, the higher education market is best characterized as being either oligopolis¬ tic or monopolistically competitive, implying that most institutions have some control over the prices (tuitions) that they charge. For the moment, I will assume that changes in tuition are related to changes in operating costs (which are largely exogenous, except for changes in total faculty compensation), to changes in prestige (the higher the pres¬ tige of an institution, the greater its monopoly power), to changes in 2 Because “other revenues” serves as a residual category, its determinants are not easy to specify. Moreover, it generally accounts for a relatively small proportion of the revenues of most institutions. For these reasons, it will be excluded from further analysis. 3 This discussion ignores the complications introduced by financial aid and the op¬ portunities it provides for price discrimination.

68

5. PATTERNS OF INSTITUTIONAL IMPROVEMENT

the prices charged by competitive institutions, and to changes in dis¬ posable personal income or some other measure of aggregate purchas¬ ing power (because many universities are quite sensitive to students’ ability to pay).4 These relationships are summarized in equations (5.5) and (5.6), which also include other unspecified exogenous variables (the vector Z4) and a random disturbance term (e4). AIncome from student sources = ATuition charges • Enrollments^ + AEnrollments • Tuition charges*

(5.5)

ATuition charges = /(AOperating costs, APrestige, ATuition charges of competitive institutions, ADisposable personal income, Z4, e4);

hi hi hi h > 0

(5.6)

Changes in student enrollments—the other important element in increased income from student sources—are also subject to institu¬ tional control. Undergraduate and graduate enrollments, however, re¬ spond to quite different forces and, therefore, require separate specifica¬ tion. As Chapter 4 pointed out, departments wishing to expand their graduate programs face three major constraints: (a) the size of their existing teaching staff, (b) the extent of their financial aid offerings, and (c) their ability to attract qualified applicants in sufficient numbers. The first of these constraints suggests that increases in graduate enrollments should be positively related to increases in faculty size, while the sec¬ ond implies that increases in the availability of teaching assistantships, research assistantships, and fellowships should lead to a larger number of graduate students. Because the number of teaching assistantships is closely related to undergraduate enrollments, while the number of re¬ search assistantships varies directly with the volume of sponsored re¬ search, we would expect to see increases in the number of graduate 4 Note that this formulation assumes that there are no differences between the rates of change of undergraduate and graduate tuition charges. In a less aggregated model, equation (5.6) might be specified separately for undergraduate and graduate tuition levels, although similar explanatory variables are likely to be important.

69

A MODEL OF PRESTIGE IMPROVEMENT

students positively related to increases in these two variables. An in¬ crease in prestige should also enable an institution to increase its grad¬ uate enrollments. Not only does high prestige confer greater visibility, often increasing the number of applicants and permitting the expansion of graduate programs with no dilution in student quality, it also attracts holders of national fellowships and scholarships to the institution, per¬ mitting an expansion of financial aid offerings to other qualified stu¬ dents. Taken together, these forces further weaken the constraints lim¬ iting the expansion of graduate programs. These relationships are summarized in equation (5.7). AGraduate enrollments = 7(ANumber of faculty, AUndergrad enrollments, AResearch revenues, APrestige, Composition of existing Grad programs, Z5, e5);

JiJi'jaJ* >

0

(5.7)

Changes in graduate enrollments are seen to be positively related to changes in the number of faculty, to changes in undergraduate enroll¬ ments, to changes in research revenues, and to changes in prestige. In addition, an institution’s ability to increase graduate enrollments prob¬ ably depends upon the number and composition of its existing doctoral programs because some fields, which require few complementary in¬ puts, can be more readily expanded than others, which may require extensive capital facilities (laboratories, scientific equipment, etc.). Fi¬ nally, Z5 represents a vector of unspecified exogenous variables and e5 represents a random disturbance term. Changes in undergraduate enrollments are more difficult to explain because public and private, high and low prestige institutions respond to quite different forces. In terms of the utility maximizing model, many of these distinctions simply reflect differences in tastes. High prestige private universities, for example, are likely to exhibit a stronger prefer¬ ence for students of high quality than they are for simply a large num¬ ber of students, while low prestige public universities are likely to favor the latter. Because of these differences, we would expect to see a more rapid growth of undergraduate enrollments at low prestige public universities than at highly esteemed private institutions. In fact, public universities generally have less control over undergraduate enrollments than do their private counterparts because their dependence on public

70

5. PATTERNS OF INSTITUTIONAL IMPROVEMENT

funds allows them little flexibility when faced with shifts in local de¬ mand. Of course, changes in undergraduate enrollments at most institu¬ tions reflect some common forces. As with graduate enrollments, in¬ creases in the size of the faculty are likely to lead to increases in the number of undergraduates. Especially large increases in tuition, on the other hand, are likely to reduce undergraduate enrollments because most institutions face downward sloping demand curves.5 Equation (5.8) captures all these relationships. Changes in under¬ graduate enrollments are seen to be related to changes in the number of faculty members at an institution, to changes in tuition charges, to a dummy variable taking the value zero for public institutions and one for private universities, to institutional prestige in an earlier period, to an interaction term designed to capture the differences between public and private institutions of high prestige, to changes in the college-age popu¬ lation (a demand variable likely to be most important for public institu¬ tions and for low prestige private universities), to a vector of other exogenous variables (Z6), and to a random disturbance term (e6). AUndergrad enrollments = /c(ANumber of faculty, ATuition, Public/private dummy, Prestige,_1; Public/private dummy • Prestige,-,, ANumber of 18 to 22 year-olds in the state, Z6, e6);

klf k6

> 0

k2, k3, k4, k5




;

->

0

(5.9)

The equation relates changes in government appropriations to changes in undergraduate and graduate enrollments, to changes in prestige, to changes in state general revenues (a measure of the tightness of the state’s budget constraint), to a vector of other exogenous variables (Z7), and to a random disturbance term (e7). The final equation considers the determinants of the volume of an institution’s sponsored research. As Chapter 4 pointed out, most re¬ search contracts are awarded on the basis of peer review and go primar¬ ily to scholars of high academic standing. The institutions to which these men and women are attached receive a large proportion of all sponsored research. Clearly, if an institution were able to attract such scholars, it would not only increase its prestige, but it would also attract a significantly larger volume of contract research. As a result, we would expect to see a positive association between increases in institu¬ tional prestige and increases in an institution’s revenues from spon¬ sored research, although the effect might operate with a lag. Similarly, a larger faculty should lead to an increased volume of sponsored re¬ search, providing the expansion is achieved without any dilution in quality. Other things being equal, the larger the number of applicants for grants, the greater the probability that at least one of them will be successful. Finally, the composition of the faculty is an important de¬ terminant of research revenues. A high proportion of humanities pro¬ fessors, for example, or an increase in institutional prestige that is concentrated in humanities departments, is unlikely to lead to a larger volume of sponsored research because research contracts are seldom

72

5. PATTERNS OF INSTITUTIONAL IMPROVEMENT

available in humanities fields. These relationships are all captured in equation (5.10). AResearch revenues = m( APrestige, ANumber of faculty, Composition of faculty, Z8, e8); mi, m2 > 0

(5.10)

Equation (5.10) relates changes in an institution’s volume of sponsored research to changes in prestige, to changes in the number of faculty, to some measure of the composition of the faculty by fields of specializa¬ tion, to a vector of unspecified exogenous variables (Z8), and to a random distrubance term (e8). The model is now complete. These 10 equations (actually, 8 equations and 2 identities) form the basis for an empirical analysis of insti¬ tutional upgrading. Before proceeding to that analysis, however, a number of estimation problems must be resolved. First, many of the equations contain vectors of exogenous variables, as yet unspecified. Without a more complete accounting of those variables, all of the equa¬ tions cannot be estimated, for it is not yet clear which are fully identified. Second, time lags have not been introduced explicitly. As a result, it is not clear whether the system is truly simultaneous, or is, in fact, recur¬ sive. This is an important question in choosing estimation techniques that will yield unbiased results. These issues are taken up in the next section, which considers problems of estimation and specification in much greater detail.

ESTIMATION PROBLEMS As the system now stands, there are 8 endogenous variables (changes in prestige, in the number of faculty, in faculty salaries, in the number of undergraduates, in the number of graduate students, in tui¬ tion charges, in government appropriations, and in research revenues) and 11 exogenous variables (institutional prestige in an earlier period, changes in the local cost of living, changes in operating costs other than faculty compensation, changes in the tuition charges of competitive institutions, changes in disposable personal income, some measure of the composition of doctoral programs, a dummy variable for public and private institutions, an interaction term formed by multiplying the

ESTIMATION PROBLEMS

73

public-private dummy variable by institutional prestige, changes in the number of 18 to 22 year-olds in the state, changes in state general revenues, and a measure of the field composition of the faculty). There are also a number of other exogenous variables (the vectors Z2 to Z8) that remain unspecified. A check of the order condition shows that many of these equations could, in fact, be estimated even without further specifying the additional exogenous variables. The complete model will not, however, be estimated here. In part, this reflects the fact that without a fuller accounting of the exogenous variables, a number of the equations might suffer from serious speci¬ fication error. In addition, the complete model is not needed for testing many of the hypotheses of the preceding chapters. For that purpose, equation (5.1) is usually sufficient, although reference will be made to several of the other equations in the course of the analysis. Equation (5.1) does not include any unspecified exogenous vari¬ ables. Moreover, we can safely assume it to be fully identified, for even without further specifying the exogenous variables Z2 to Z8 the order condition is met. How, then, should the equation be estimated? A glance at the complete model suggests that simultaneity is likely to be present, and that two-stage least squares (TSLS) should be employed to yield consistent estimates. At this point, the time lags involved in the process of institutional upgrading must be explicitly considered. As pointed out in Chapter 4, administrators often respond to increased enrollments with a lag, al¬ locating additional faculty positions only after they are certain that the trends that are being observed are genuine and not simply statistical noise. Similarly, a more prestigious faculty does not guarantee an im¬ mediate increase in the volume of sponsored research because research proposals take time to formulate and the review and funding process moves slowly. Perhaps most important, increases in the number and quality of faculty at an institution do not translate into immediate in¬ creases in prestige since such information takes time to diffuse through the academic world. The existence of these (and other) lags suggests that the system being estimated might not be simultaneous. Instead, some variables might be determined prior to others, lending a recursive character to the model. As long as the covariances of the disturbances of the differ¬ ent equations are also zero—and we have no reason to assume that they are not—estimation of equation (5.1) by ordinary least squares (OLS) will yield unbiased parameter estimates.

74

5. PATTERNS OF INSTITUTIONAL IMPROVEMENT

Rather than debating the merits of OLS and TSLS estimation on logical grounds alone, a direct test for the existence of simultaneity bias can be employed.6 First, however, an acceptable measure of changes in institutional prestige—the dependent variable in equation (5.1)—must be developed, for it is central to all subsequent analysis. This subject is addressed in the next section.

MEASURING PRESTIGE IMPROVEMENT In keeping with the earlier discussion of the distinction between the prestige and the quality of an institution, the measure employed here should be partly subjective, incorporating reputational elements as well as indications of absolute quality. In addition, it should be built up from the ratings of individual departments because, as the utility maximizing model points out, an institution’s overall prestige is no more than some weighted function of the prestige of its separate de¬ partments. Both of these considerations point toward the American Council on Education’s surveys of graduate education as sources for the basic data.7 Those surveys, the so-called Cartter and Roose-Anderson studies, assess, for each doctoral-granting department, both the quality of the graduate faculty and the effectiveness of the graduate program in a variety of different fields. Only the former will be used in this analysis because the theory developed here says little about differences in edu¬ cational quality among institutions. Because department ratings are based upon scores awarded by outside experts, these measures incor¬ porate reputational elements and are well suited as indexes of prestige. Appendix 5.1 (at the end of this chapter) describes the survey instru¬ ment in more detail, and explains precisely how these ratings are com¬ puted for each department. The department ratings must then be aggregated through the use of a weighted average in order to produce a measure of overall institu¬ tional prestige. Appropriate wieghts, however, cannot be readily iden¬ tified, nor can they be easily approximated through some revealed preference procedure because a wide variety of valuation schemes are 6 See the discussion on pp. 84-85 of the text. 7 Cartter (1966) and Roose and Anderson (1970). In this study, the original ratings were used rather than the published data, which are only approximate. All ratings were supplied to the author by the American Council on Education.

75

MEASURING PRESTIGE IMPROVEMENT

likely to exist.8 Some institutions will place a high value on a small number of eminent departments, while others will prefer a large num¬ ber of respectable ones. As a result, our ability to evaluate institutional upgrading hinges on finding a suitable set of improvement indexes— indexes that are sensitive to the various methods of combining depart¬ ment ratings into a single measure of institutional prestige. This text employs 10 separate improvement indexes, which are defined below. M

N

TOTALIMPRV1 = £ prf - X prf M

N

AVGIMPRV1 = (X prf) /M p

(1) prf) /N

p

TOTALIMPRV2 = £ prf - £ prf AVGIMPRV2

=

(2)

(2 prf) jp - (£ prf) /P

(3) (4)

NUMBERIMPRVO = Number of departments at each insti¬ tution for which prf - prf > 0

(5)

NUMBERIMPRV.3 = Number of departments at each insti¬ tution for which prf - prf >.3

(6)

NUMBERIMPRV.5 = Number of departments at each insti¬ tution for which prf - prf >-.5

(7)

PERCENTIMPRVO = NUMBERIMPRVO/N

(8)

PERCENTIMPRV. 3 = NUMBERIMPRV.3/N

(9)

PERCENTIMPRV. 5 = NUMBERIMPRV.5/N

(10)

8 One possible approach to identifying the weights for a given university would parallel that of McFadden (1975, 1976). Using time series data, McFadden employs a multinominal logit specification to identify the major decision rules used by the California Division of Highways in choosing among alternative highway projects. In so doing, he shows that under suitable assumptions the logit specification corresponds to a utility maximization process by the decision-making unit being investigated. A similar method might be employed to identify the criteria used by university administrators in deciding which departments are to be upgraded. One result of that analysis would be estimates of the relative importance (weights) attached to increasing the prestige of different depart¬ ments. For a related attempt at identifying the decision rules used in university budgeting, see Duncan (1976).

5. PATTERNS OF INSTITUTIONAL IMPROVEMENT

76 where

prf = Prestige (rating) of the z'th department in 1969 prf = Prestige (rating) of the z'th department in 1964 M = Number of rated Ph.D. programs at each institution in 1969 N = Number of rated Ph.D. programs at each institution in 1964 P = Number of Ph.D. programs at each institution that were rated in both 1964 and 1969 These indexes fall into several broad categories. TOTALIMPRV1 and AVGIMPRV1, for example, measure changes in the total and aver¬ age scores of each institution, as do TOTALIMPRV2 and AVGIMPRV2. They are distinguished from one another by their treatment of newly created Ph.D. programs. While the former two indexes are con¬ structed by first tallying up (for both 1964 and 1969) the scores of all doctoral-granting departments at each institution in the relevant fields (and, therefore, include in their 1969 totals the scores of those depart¬ ments that did not receive ratings—in effect, had a score of zero—in 1964 because their doctoral programs had not yet been introduced), the latter two ratings include only those departments that were rated (and, hence, offered the Ph.D.) in the earlier period as well as the later one. As a result, TOTALIMPRV 1 and AVGIMPRV1 combine two influences—those due to increases (or decreases) in the number of Ph.D. programs offered by the institution between 1964 and 1969 and those due to improvements in faculty quality over the period—while TOTALIMPRV2 and AVGIMPRV2 are more limited, and more accurately measure changes in the prestige of the existing doctoral programs. Alternatively, institutional upgrading can be measured by the number of departments at an institution that have increased their rat¬ ings by a specified amount. NUMBERIMPRVO, NUMBERIMPRV.3, and NUMBERIMPRV.5 are indexes of this type, and measure, respec¬ tively, the number of departments at each institution whose 1969 rat¬ ings (a) were at least as high as their 1964 ratings, (b) were at least .3 higher than their 1964 ratings, and (c) were at least .5 points higher than their 1964 ratings.9 Of the three, the latter (c) is probably the best 9 Note that only those departments offering the doctorate in both 1964 and 1969 are included in the totals. Newly introduced Ph.D. programs, whatever their 1969 ratings, are not counted.

MEASURING PRESTIGE IMPROVEMENT

77

measure of prestige improvement because a significant upgrading of faculty is usually required for a department to experience a gain of .5 points in its rating. Conversely, NUMBERIMPRVO is likely to be a relatively poor measure of institutional upgrading and is more of a simple count of the number of Ph.D.-granting departments at an institu¬ tion than it is an accurate measure of prestige improvement. Because of the general upward drift in scores between 1964 and 1969, most de¬ partments that were rated in both periods scored at least as high in the later ratings as they did in the earlier ones. One drawback of this last set of indexes is that they favor those institutions with the widest range of graduate offerings, for the larger the number of doctoral programs at an institution, the larger the num¬ ber of departments that could conceivably be upgraded. Smaller in¬ stitutions, with fewer Ph.D. programs, are unlikely to register high improvement scores if NUMBERIMPRVO, NUMBERIMPRV.3, or NUMBERIMPRV.5 are employed, for the amount of upgrading that they could achieve is bounded by the small number of Ph.D.-granting departments that they possess. To remedy these deficiencies, three proportional improvement in¬ dexes have been constructed. PERCENTIMPRVO, PERCENTIMPRV.3, and PERCENTIMPRV.5 measure, respectively, the percentage of each institution’s Ph.D-granting departments whose 1969 ratings (a) were at least as high as their 1964 ratings, (b) were at least .3 points higher than their 1964 ratings, and (c) were at least .5 points higher than their 1964 ratings. Because these indexes measure improvement on a proportional points basis, they are not biased against the smaller in¬ stitutions, which often have fewer doctoral programs. They do, how¬ ever, share some of the same properties as the indexes based on a count of the number of departments showing a specified increase in their ratings. PERCENTIMPRV.5, for example, is likely to be an espe¬ cially good measure of institutional improvement, while PERCEN¬ TIMPRVO is likely to be an especially poor one. Taken together, these indexes provide a relatively complete pic¬ ture of the process of prestige improvement. Not all of them, however, are employed in the analysis that follows because many of the indexes are quite closely related. One indication of this is the high intercorrela¬ tions among the various indexes. According to Table 5.1, nearly all correlations are significant at the .1% level. The correlations are espe¬ cially high among indexes of the same general type, suggesting that subtle differences do distinguish the various categories. For example, the proportional improvement indexes are highly interrelated (corre-

78

5. PATTERNS OF INSTITUTIONAL IMPROVEMENT

lation coefficients of .70 between PERCENTIMPRVO and PERCENTIMPRV.3, and .77 between PERCENTIMPRV. 3 and PERCENTIMPRV.5), as are the indexes that measure the total and average im¬ provement of existing programs alone (a correlation of .77 between TOTALIMPRV2 and AVGIMPRV2). In the following pages, only four improvement indexes will usually be employed—AVGIMPRV1, AVGIMPRV2, NUMBERIMPRV.5, and PERCENTIMPRV. 5. They were chosen from among the larger set of indexes for several reasons. First, these are the most discriminating indexes because they reflect only the most substantial prestige im¬ provements. Given the general upward drift in ratings over the period, this is an important advantage. Second, each index is of a different general type and, thus, corresponds to a slightly different notion of institutional upgrading. Improvements not captured by one index are likely to be picked up by another. And third, preliminary tests with the complete set of improvement indexes indicated that these four provide the best econometric results. While the coefficient estimates produced by using the other indexes are generally similar to those reported here, the associated /-statistics and R2' s are typically smaller. In the next section the basic equation is estimated by ordinary least squares and by two-stage least squares, and the results are then compared for evidence of simultaneity bias. Following that discussion, a number of the hypotheses of Chapters 3 and 4 are reintroduced and are subject to formal test. Throughout, the emphasis is on differences in the behavior of various types of institutions and on the explanations for those differences.

EXPLAINING INSTITUTIONAL IMPROVEMENT Table 5.2 presents OLS estimates of the basic equation for the entire sample of upgrading institutions.10 The dependent variables are the four improvement indexes introduced in the previous section, while 10 It should be emphasized that only those institutions that actually upgraded (i.e., that increased their prestige between 1964 and 1969) are included in the regression analy¬ sis. That limitation was prompted by the belief that institutional improvement and institu¬ tional decline are, in fact, very different phenomena and must be explained by separate theories. While an attempt was made to model prestige losses, variables similar to those employed in the equations in the text provided little insight and had only weak explana¬ tory power. In the absence of further evidence, it would appear that more idiosyncratic factors best account for institutional decline.

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vations

t-value 2.18* 2.47* 1.28 1.10 .37 .24

* Significant at the 5% level (one-tailed test)

institutions. This is done in Table 5.8, using AVGIMPRV2 as the im¬ provement index and computing all elasticities at the sample means. Note that some of the estimated elasticities, particularly those for the sample of high prestige institutions, are less reliable than others be¬ cause they have been computed from statistically insignificant coeffi¬ cients. The figures in Table 5.8 emphasize the sharply differing effective¬ ness of the two upgrading strategies, a finding not apparent from the estimated coefficients alone. Without exception, increases in prestige were far more responsive to increases in faculty salaries than they were to increases in faculty size. For example, a 10% increase in faculty compensation at a representative public university lead to a 16% in-

96

5. PATTERNS OF INSTITUTIONAL IMPROVEMENT

Table 5.8 Elasticities of Prestige Improvement with Respect to Changes in the Number of Faculty and Changes in Faculty Salaries

Type of institution Public universities Private universities High prestige universities Low prestige universities All universities

Elasticity with respect to changes in the number of faculty

Elasticity with respect to changes

.29 .60 .24 .52

1.63 2.24

.60

in faculty salaries

.59 1.20 1.36

crease in prestige, while a similar increase in the number of faculty resulted in an increase in prestige of only 3%. Similar differences in magnitude are obtained for the other classes of institutions. Overall, an institution wishing to increase its prestige in a short period of time— whether it was public or private, of high or low prestige—was likely to have been far more successful if it raised faculty salaries than if it simply increased the size of its faculty. Of course, there are other aspects of institutional improvement besides those just discussed. Several of these will be considered in the next section, which begins by looking at institutional differences in the awarding of financial aid.

PATTERNS OF GRADUATE FINANCIAL AID As discussed in Chapter 4, the availability of student financial aid is an important constraint limiting the growth of graduate programs, for without such aid, many students—especially the most highly qualified, who are likely to be offered aid by other institutions—are unlikely to attend. These considerations were important in specifying equation (5.7) of the structural model, which explains increases in an institu¬ tion’s graduate enrollments. As the discussion of that equation points out, three forms of aid are generally offered (teaching assistantships, research assistantships, and fellowships), each lending itself to more intensive use by different types of institutions. Teaching assistantships are likely to play a more important role in the upgrading efforts of public institutions, which are able to draw upon more rapidly expanding undergraduate enrollments and, therefore,

97

PATTERNS OF GRADUATE FINANCIAL AID

Table 5.9 Average Increases in Different Forms of Graduate Financial Aid, Public and Private Universities, 1966-1970 Average Increase Measure of financial aid ADOLLARRSCHASST ANUMBERRSCHASST ADOLLARTCHASST ANUMBERTCHASST ADOLLARFELLSHP ANUMBERFELLSHP

Private universities

/-value

(35) (40) (37) (41)

141,103 (32)

274,090 (51) 112 (53)

333,948 (38) 776 (36)

1.34 1.32 3.11* 2.87* -.30 -.93

Public universities 335,718 61 674,320 164

8 (31) 199,071 (34) 45 (34)

* Significant at the 1% level (one-tailed test). Note: Number of observations is in parentheses.

have a higher derived demand for teaching assistants. Research assistantships and fellowships, on the other hand, are likely to be more important at private universities and at the most prestigious institu¬ tions, a result of their relatively stable undergraduate enrollments and their large share of all sponsored research. These considerations lead to Proposition 5, which is tested in Tables 5.9 and 5.10. Proposition 5: During the 1960s, public universities relied more heavily on teaching assistantships when upgrading and expanding their Table 5.10 Average Increases in Different Forms of Graduate Financial Aid, High and Low Prestige Institutions, 1966-1970 Average Increase Measure of financial aid

High prestige universities

Low prestige universities

ADOLLARRSCHASST ANUMBERRSCHASST

306,039 ( 9) 88 (11)

278,055 (47) 38 (55)

ADOLLARTCHASST ANUMBERTCHASST ADOLLARFELLSHP ANUMBERFELLSHP

647,077 ( 9) 88 (10) 949,765 (14)

403,715 120 198,116 56

2,161 (14)

* Significant at the 5% level (one-tailed test). Note: Number of observations is in parentheses.

(51) (54) (60) (61)

/-value .12 .80 .91 -.55 2.69* 2.47*

98

5. PATTERNS OF INSTITUTIONAL IMPROVEMENT

graduate programs than did private universities. Private institutions, particularly the most prestigious, relied more heavily on research assistantships and fellowships. Tables 5.9 and 5.10 compare average increases in the number and dollar volume of research assistantships (ANUMBERRSCHASST and ADOLLARRSCHASST, respectively), teaching assistantships (ANUMBERTCHASST and ADOLLARTCHASST), and fellowships (ANUMBERFELLSHP and ADOLLARFELLSHP) in the period 1966-1970 for different classes of institutions. As expected, public uni¬ versities increased both the number and dollar volume of their teaching assistantships far more than did the private institutions. The t-values corresponding to both measures of increased TA support are significant at the 1% level using a one-tailed test. The results for research assis¬ tantships, however, fail to confirm the predictions above. Public in¬ stitutions, and not private ones, experienced larger increases in the number and dollar volume of RA support, although the differences are not statistically significant. The results for the elite universities, how¬ ever, which are predominantly private (especially in this sample), do yield the predicted differences. They report increases in the number and dollar volume of both research assistantships and fellowships which clearly exceed the increases at institutions of lower prestige. Only the latter differences, however, are statistically significant, reflect¬ ing the large estimated standard deviations and the resulting low power of the r-tests. One additional implication of Proposition 5 is that improvement at private institutions is more likely to be correlated with increases in research assistantships and fellowships than it is at public institutions. Conversely, we would expect the upgrading of public universities to be correlated more often with increases in teaching assistantships. In addi¬ tion, because of their emphasis on student numbers, public institutions are likely to show stronger correlations of prestige improvement and the numerical measures of increased aid, while private institutions, because of their willingness to improve quality without increasing numbers (i.e., by offering larger financial aid packages, but not neces¬ sarily more of them), should show closer associations between prestige improvement and the dollar measures of increased student support. These expectations are generally confirmed by Table 5.11, which reports, for separate samples of public and private universities, the correlation of institutional improvement with different measures of

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Table 6.4 Regressions Explaining Aggregate Improvement, 1964-1969

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