Paying the Piper: Productivity, Incentives, and Financing in U.S. Higher Education.

Scholars interested in the economics of higher education will find this volume well worth reading. Compiled primarily from the authors' past research, it addresses trends in revenues and expenditures, productivity, student finance, institutional finance, the successes of higher education, its major problems, and proposed solutions, using qualitative and quantitative analysis.

After a short introductory chapter, Chapter 2 explores where the money for higher education comes from, and where it goes. Using a data set compiled by government and modified by them, the authors demonstrate the growing importance of tuition revenues, the size of cutbacks in federal research funding, trends in state appropriations for public institutions, and the growing and changing role of gifts and contributions. Much of what they report is known but several interesting insights arise as to trends in operating expenses, expenditures on buildings and equipment, and rising tuitions. Chapter 3 explores productivity as it applies to higher education; it also provides a brief evaluation of the assessment literature, offering a valuable review for the uninitiated but few insights for experts.

Chapter 4 looks at the linkage between cost, price, and quality. In addition to offering an interesting analysis of the impact of cost changes on quality, the authors link the problem of measuring quality to economic literature on imperfect information markets. Particularly interesting are the discussions of whether the cost-price spiral has ended, whether federal aid adds to cost inflation, and whether colleges and universities should be allowed to collude. Chapter 5 develops several themes showing that academic tenure has desirable efficiency properties. Students of asset specificity will find the arguments provocative, albeit incomplete. Of particular interest is the discussion of what motivates senior faculty. While Chapter 6 is titled "How Can We Tell if Federal Aid Is Working?", it actually provides a framework that captures major issues in defining "working," and focuses the discussion of aid issues effectively. The chapter concludes that decentralized market-based grants work well while market-based loans run administered through banks do not and that Congress performs better when it takes time to deliberate.

Primarily a policy chapter, Chapter 7 focuses on constructive ways to look at student aid policy. Policymakers would do well to heed the cautions offered here. Chapter 8 employs quantitative analysis to provide a critical review of the enrollment effects of student aid. Cross-section studies are reviewed, and the problem is posed that, although a large enrollment response to changes in student aid is evident, it is not easily detected in time series data. Using analysis to resolve this paradox, the authors find an enrollment response among low income students but not among more affluent students. Recommendations are made for additional research. Chapter 9 provides a brief discussion of "Robin Hooding" which is tangential to the rest of the book while Chapter 10 explores the effects of government financing on the behavior of colleges and universities. Using a panel study of colleges and universities, the authors develop an econometric model to examine whether increases in federal aid, federal grants and contracts, and state and local appropriations induce rises in tuitions and fees. While provocative, these findings suffer from the lack of a well developed structural model.

Chapter 11 presents a comprehensive picture of the total income of Williams College. Its relevance is somewhat mystifying. Chapter 12 discusses the need for better financial accounting, an important area that policymakers tend to ignore in their discussions while Chapter 13 raises the valuable question of why capital costs are ignored by nonprofit organizations. Many of the arguments will appeal to economists and they are valuable food for thought. The authors conclude economic ideas are useful but that it is necessary to combine "analytical clarity with a considerable knowledge of, and respect for, the special purposes and the unique institutional realities of the higher education enterprise." While this conclusion comes as no surprise to those who have labored in the research vineyards of academe, on balance, this is a stimulating volume that opens up many potential avenues of inquiry.

Howard P. Tuckman Virginia Commonwealth University