The College Cost Disease

The College Cost Disease

Higher Cost and Lower Quality

Robert E. Martin

College cost per student has been on the rise at a pace that matches – or exceeds – healthcare costs. Unlike healthcare, though, teaching quality has declined, and rapidly rising costs and declining quality are not trends easily forgiven by society. The College Cost Disease addresses these problems, providing a behavioral framework for the chronic cost/quality consequences with which higher education is fraught. Providing many compelling insights into the issues plaguing higher education, Robert Martin expounds upon H.R. Bowen’s revenue theory of cost by detailing experience good theory, the principal/agent problem, and non-profit status.

Preface

Robert E. Martin

Subjects: economics and finance, economics of education, education, economics of education

Extract

My purpose here is to apply formal economic theory to higher education. The uniquely high cost and quality issues in higher education lead me to a critical evaluation of the academy. I know these criticisms are difficult for members of the academy to accept and I hope my colleagues realize I undertake this project because I am dedicated to what higher education can and should be. The problems come from the network of incentives within the academy. These incentives are not properly aligned with the public interest. The incentives create the problems. The incentives can make it appear members of the academy are engaged in collusion. Nothing could be further from the truth; there is no conspiracy; people follow where the incentives lead. The vast majority of faculty members, administrators, and board members are sincere in their belief the actions they take are in the public interest. The misalignment of incentives leads to extravagant increases in cost per student and a secular decline in quality. Because the public is uncertain about value added per individual institution, they choose cost as a proxy for quality; the assumption is, if it cost more, it must be higher quality. The value added uncertainty also explains why reputations are the primary means of competition among higher education institutions. The association of cost with quality creates a perverse incentive for colleges and universities to spend as much as they can per student. The competition has no limit; there are always projects that conceivably could improve...