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 7: Inside the Black Box

Robert E. Martin

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


7.1 INTRODUCTION In 1980 H.R. Bowen derived the “revenue theory of cost” from a comprehensive empirical analysis of cost per student in private and public institutions (1980). The evidence reveals that cost per student varied considerably from one institution to another, even for similar institutions, program offerings were considerably different, and staffing patterns by program were also different. The differences were so pronounced that he suggested it was as if they had been chosen by “centrifugal randomness” (1980: 227–8). These variations mean a common higher education technology was not followed even in core academic disciplines such as basic sciences, mathematics, and the social sciences. This is significant because most of these disciplines have well established paradigms that suggest a common approach should prevail. Bowen’s general conclusions are: higher education institutions try to maximize their quality reputations, there is no limit on the amount of money they can spend on “quality,” they raise all the money they can, they spend all the money they raise, and the cumulative effect is a never ending increase in expenditures (1980: 19–20). Bowen’s conclusions were extracted inductively from what he observed in the data. His conclusions about college and university behavior are remarkable since they describe precisely what happened to costs after 1980. Higher education’s cost history since 1980 is entirely consistent with Bowen’s revenue theory of cost. The lack of a behavioral foundation limits the usefulness of Bowen’s theory of cost. Until we understand why reputations for “excellence, prestige, and influence” are...

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