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.

Chapter 5: Commercialization: The Devil Made Me Do It!

Robert E. Martin

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


5.1 INTRODUCTION Derek Bok (2003), David Kirp (2003, 2005), Gaye Tuchman (2009), and Jennifer Washburn (2005) among others (Engell and Dangerfield, 2005; Gardner, 2005) argue “commercialization,” “corporatization,” or “commoditization” is responsible for higher education’s insatiable demand for money. Derek Bok defines “commercialization” as “efforts within the university to make a profit [emphasis added] from teaching, research, and other campus activities” (2003: 3). These authors criticize the direction higher education took after 1980; they are troubled by the abandonment of traditional academic values for what they believe are “corporate values.” The belief that higher education’s unseemly pursuit of money comes from an alien corporate influence is common among faculty members (Bok, 2003: 19; Tuchman, 2009). Supposedly, the problems come from alien values such as efficiency, competition, treating students as customers, and just too much business influence on campus (Berube, 1998). Having served for 30 years in higher education and been employed for almost a decade in publicly traded corporations, I think there is something not right with this argument. The first clue that something is wrong comes from the fact there is no “profit” in higher education. The for-profit organization is precisely defined; the principals (owners) are the residual claimants1 in an enterprise that maximizes the surplus between revenues and costs (Alchian and Demsetz, 1972). That surplus can be maximized only if costs are minimized. No one in higher education is minimizing teaching and research costs in order to provide a surplus for students, parents, donors, and taxpayers. Indeed, we know...

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