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Abstract
We address the following question: how does a higher education funding system influence the trade-off that universities make between research and teaching? We do so by constructing a model that allows universities to choose actively the quality of their teaching and research when faced with different funding systems. In particular, we derive the feasible sets that face universities under such systems and show how, as the parameters of the system are varied, the nature of the university system itself changes. The culture of the university system thus becomes endogenous. This makes the model useful for the analysis of reforms in funding and also for international comparisons.
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Quasi Markets in Education
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The relatively recent, though limited, literature that deals with the microeconomics of Higher Education Institutions, has mainly focused on an Industrial Organization approach of the problem, emphasizing strategic behavior either between or within universities. The present paper deliberately neglects strategic interactions and confines itself to a perfectly competitive quasi-market world. ...[more]
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In my opinion, this is a very good starting point. In a sense, what this paper aims at is to build a microeconomic theory of competitive universities that would mimic the analysis of the competitive firm in the standard neoclassical model. Such a contribution is certainly welcome given the present state of theoretical literature. This is not a trivial task, in particular because HEI exhibit specific features such as having inputs (students) who are also outputs or being multi-product entities (teaching and research). The authors carefully study the interplay between funding issues and the allocation of academics' time to build a model that allows them to study the extent to which research funding schemes affect the distribution of HEI types as a function of their preferences. And they show it does in a very meaningful way.
Of course, the paper is only a starting point and the results are obtained at the price of serious simplifications. However, I view it as a promising starting point. It should provide food for thought to most scholars interested in developing microeoconomic analysis of HEI quasimarkets.
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Response to referee in attached pdf document.