Endowment Management Based on a Positive Model of the University
AbstractI propose a positive model of the university that generates many apparently peculiar features of universities such as endowments and tuition subsidies. The model proposes a specific objective function: a university maximizes its contribution to the intellectual capital of society, valued at social returns. The objective function is enforced within the model–that is, it leads to actions that reinforce the initial selection of the objective function. Endowments also arise naturally within the model: they are a necessary feature of certain universities, not an accident. The model has important implications for the decisions that universities should make on many fronts, but I focus on the implications for financial decisions, especially universities' endowment spending rules and portfolio allocations. The model is designed to explain America's great private research universities and very selective liberal arts colleges and–with modest adaptations–institutions like America's and Britain's great public research universities. Indeed, a ancillary benefit of the model is that it provides a justification for existence of the aforementioned institutions by assigning them a unique role in the creation of the world's intellectual capital.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18626.
Date of creation: Dec 2012
Date of revision:
Publication status: published as Caroline M. Hoxby. "Endowment Management Based on a Positive Model of the University," in Jeffrey Brown and Caroline M. Hoxby, editors, "How the Financial Crisis and Great Recession Affected Higher Education" University of Chicago Press (2013)
Note: ED LS PE
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Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
- I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-07 (All new papers)
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- Caroline Hoxby, 2014. "The Economics Of Online Postsecondary Education: MOOCs, Nonselective Education, And Highly Selective Education," Discussion Papers 13-024, Stanford Institute for Economic Policy Research.
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