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BOHANON & CUROTT: Universities chase quality, but defining it is a trick

May 11, 2018

Economic Analysis by Cecil Bohanon & Nick CurottUniversities and colleges, though they are not-for-profit enterprises, in many ways act like for-profit firms. Like for-profits, schools constantly adjust price and product quality to entice customers. But, like not-for-profits, they rely heavily on public and/or private donations to survive. Like any funded organization, they can go bankrupt, yet unlike for-profits, they are not accountable to traditional profit-seeking shareholders. This hodgepodge creates a rather odd set of incentives for higher education. Just what is the university supposed to do?

Much ink has been spilled over the appropriateness and efficacy of the profit motive in for-profit enterprises. Should corporate managers sacrifice profits for other ends? Whatever one concludes on that issue, it is fair to say that bottom-line profits, especially over an extended time frame, provide an easy to digest, understandable and relevant metric of performance open to public scrutiny. A company’s expansion into a new product line can and will readily be reflected in its bottom line. Moreover, if the company’s shares are traded, the market quickly reflects investors’ expectation about the impact of the expansion on its future profitability.

In higher education, however, the profit motive is not explicitly in play. Perhaps this is inevitable and appropriate, but it makes a target metric problematic. Our university board recently approved a plan to build a $4 million multicultural center. And Ball State might still “take over” the Muncie Public Schools, if the Legislature passes House Bill 1315 in its special session. What are the likely impacts of these decisions on Ball State University? There is no market for Ball State “shares,” nor can the university provide a measure of earnings-per-share.

So what metrics should be used in making university decisions or assessing those decisions after the fact? Any number come to mind: the impact on the school’s enrollment, the quality of its students and graduates, its graduation rate, its revenue streams, its institutional prestige, its overall program quality. However, many of these metrics, particularly on the quality margin, are difficult to quantify and easy to game. Nor is it clear which metrics should matter or how much. This is not particularly a criticism of the university as much as an observation. Everyone associated with higher education wants quality education—the devilish difficulty is defining what it is.•

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Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.

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