Economics of Higher Education: The Case of Highly Selective, Elite Private Universities
Assignment #1
(Submit Word file electronically)
The first assignment consists of a referee report – an evaluation of a scholarly article. I have selected the following by Gordon Winston – it is a well-known article by an expert, lucidly analyzing an important topic. It is very relevant for us, as we are concerned about the economics of higher education – Winston focuses on the nature of highly selective/elite private universities.
Winston, Gordon. "Subsidies, Hierarchy and Peers: The Awkward Economics of Higher Education." Journal of Economic Perspectives 13, no. 1 (1999): 13-36.
(Feel free to skip parts of Winston paper that talks about concepts you may not be familiar with, like non-distribution constraint (when discussing non-profits). These should not affect your understanding of his main points and insight.)
You can read some background material in the paper by Charles Clotfelter in the same issue:
Charles Clotfelter, “The Familiar but Curious Economics of Higher Education”, Journal of Economic Perspectives 13, no. 1 (Winter 1999): 3-12.
The following paper by Caroline Hoxby, some insights from which we will brief discuss in class this week (see slides for Lecture 3), has a nice discussion on the nature of selective universities, and how they significantly different from non-selective colleges.
Hoxby, Caroline M. (2014). The Economics of Online Postsecondary Education: MOOCs, Nonselective Education, and Highly Selective Education, NBER Working Paper 19816, January.
Below are the questions and issues I expect you to cover in your report. The report should not be more than 5 pages long, with 1.5 spacing and one-inch margins. I am happy to discuss any issue related to the assignment, in class or in individual meetings or via email.
i) The importance/motivation/background of the issue. For example, you can talk about how knowing the economics behind higher education will help us in framing proper policies, and in assessing the impact of various trends in financing, enrollment, etc.
ii) The conclusions of the paper, and its contribution. What do we learn from reading the paper, in particular about the nature of a highly selective university?
iii)How do recent trends in state subsidies and college prices affect your understanding and interpretation of this paper?
iv)(Brief) How do what we have learned in our discussion of the for-profit sector influence your reading of Winston? In particular, does it surprise you that there are so few for-profits among four-year colleges?
v) We will be discussing peer effects in higher education next week. How does your understanding of these peer effects - based on your reading of the assigned chapter and the class discussion – help you in critically analyzing what Winston is saying?
vi) How do you think online learning might complicate the picture?
Other than the length of the paper, there are not many rules to follow. Feel free to consult any course materials, including lecture notes and assigned articles, commentaries, book extracts, etc.
Economics of Higher Education: The Case of Highly Selective, Elite Private Universities
Author’s Name
The Institutional Affiliation
Course Number and Name
Instructor Name
Assignment Due Date
1.0. Background and Motivation
This discussion is based on the paper by Winston (1999) titled Subsidies, Hierarchy and Peers: The Awkward Economics of Higher Education. The paper's rationale is largely underpinned by the confusion and information assymatary surrounding the economics of higher education. The manner in which the production of services is subsidized offers a vague understanding of the distribution of resources generated through the grants. Since the grants are set aside from the taxes, the taxpayers need to be better informed about the justifiable distribution of resources. Winston points out the negative implications of the subsidy-oriented production of services and peer effects resulting in the hierarchical positioning of educational institutions. A close investigation indicates that the issue needs to be understood more clearly to guide the policymakers and legislators to take appropriate initiatives to achieve a balanced interplay between demand and supply and pave the path to a level playing field for all institutions.
The widening gap between rich and poor institutions lies at the base of motivation for the investigation into the case of higher education economics (Winston, 1993). While higher education is considered a non-profit sector, the concentration of resources within the elite universities aligns with the for-profit market scenario regarding competitive rivalry (Bonatti & Borzaga, 2001). Even though not explicitly stated, Winston's purpose is to produce a strong wake-up call for the concerned institutions, emphasizing the need for appropriate reforms within the economic structure of higher education.
2.0. Conclusion of the Paper and its Contributions
The paper tackles the puzzle of whether or not traditional theories applying to the for-profit sector apply to the economics of higher education. Winston (1999) creates a convincing case that the for-profit model and its underlying guiding principles remain ineffective in guiding the policy framework for higher education. The author shares critical concerns about the differences in cost structure, differences in cost-price ratio, complex process of enrolling the students satisfying the criteria, and inappropriateness of laws associated with competition in a form as applied to the for-profit model (Winston, 1999). A close understanding of these conclusions suggests that the paper has diverse contributions, as indicated below:
2.1. Highlighting Under-Researched Issues
Winston has provided the base for further research in the often neglected area by considering the comparison with the for-profit sector. There is considerable discussion in the literature drawing on the insights from Winston's understanding of higher education, indicating that Winston has motivated the scholarly circles to build on his findings and tap into the economic complexities of higher education (Winston, 1993). The proliferation of research in this direction indicates that the issue has received considerable attention and needs to be responded to through an appropriate reformative agenda.
2.2. When seen in conjunction with the Impact of Higher Education
The economic and social impact of higher education is evident from the following two types of statistics drawn from Statista:
Figure SEQ Figure \* ARABIC 1: Number of Master's degree recipients in the United States from 1879/80 to 2030/31 (in 1,000s)
(Statista, 2021)
Figure SEQ Figure \* ARABIC 2: Educational attainment distribution in the United States from 1960 to 2022
(Statista)
The above figures suggest that the number of graduates and master's degree recipients is undergoing a steady uptrend, and there are optimistic projections for the future. Clotfelter (1999), in a relatively older study, also argues that the economic impact of higher education cannot be overlooked. The author argues that at the time of his coverage, the industry comprises 3600 firms. The high dependence of employment on the industry and the economists affiliated with it outline the need for the industry's economic structure, especially when expenditures are continuously on the rise. These conclusions align with Winston's signals about the importance of higher education within the broader economic structure (Winston, 1999). Therefore, it is surmised that Winston's critical commentary and conceptualization of the economics of elite industry effectively contribute to understanding the industry's economic significance into which the author roots the recommendations for an appropriately revised policy framework.
2.3. Policy-related Implications
The paper also creates advocacy for the policy reforms. Winston criticizes the oversimplified view of the economic structure of higher education and outlines the need for revision (Winston, 1993). For instance, Winston emphasizes considering the interplay among factors like peer effects (customer input), differences in price-to-cost ratio across the institutions, criteria used for selectivity, and widening the gap between elite and lower-level institutions to modify the policy and regulatory frameworks appropriately. At this level, Winston's advocacy aligns with sustainable development goals, focusing on optimal efficiency, inclusion, equitability, and improved social impact of higher education.
3.0. Recent Trends and an Understanding of the Paper
In the contemporary literature, there is considerable consensus over the idea that the smaller colleges and educational institutions have to pay the cost of the subsidies forked out by the elite institutions. For example, Weissmann (2015) points out that the large elite universities are spending thousands of dollars from their yields in subsidies thanks to their ability to secure large endowments going untaxed. The author argues that the fact that these universities serve elite students does not necessarily underpin a negative view of subsidies. However, when seen in the backdrop of state colleges cutting their expenses to ensure survival, it justifies taxing the endowment of large universities. In a more recent report, Marquez (2021) reports that certain elite universities have already been brought under an obligation to pay tax on their endowment. Hence, the emerging situation is largely rooted in Weissmann's (2015) emphasis and Winston's (1993) perspective on deterring unrestrained subsidizing by elite universities. However, Marquez discovers that the newly imposed taxes have discouraged the spending on students, leaving the students under a huge burden of loans.
M...