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Product Mix and Cost Disaggregation: A Reinterpretation of the Economics of Higher Education


  • Estelle James


This paper attempts to separate undergraduate, graduate, and research costs at the university. Since the proportion of resources allocated to each of these activities varies systematically across time and institutions, this disaggregation alters our cross-sectional and intertemporal picture of productivity, net benefits, and subsidies in higher education. Real undergraduate costs are shown to be much lower than previously assumed and the social rate of return higher; educational "productivity" has been rising through time, contrary to popular belief. Undergraduate education is now a profitable "production" activity at universities, used to subsidize their "consumption" of loss-making graduate education. Community college teaching is more costly and heavily subsidized than university teaching of lower-division students.

Suggested Citation

  • Estelle James, 1978. "Product Mix and Cost Disaggregation: A Reinterpretation of the Economics of Higher Education," Journal of Human Resources, University of Wisconsin Press, vol. 13(2), pages 157-186.
  • Handle: RePEc:uwp:jhriss:v:13:y:1978:i:2:p:157-186

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    References listed on IDEAS

    1. Davidson, Carl & Woodbury, Stephen A, 1993. "The Displacement Effect of Reemployment Bonus Programs," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 575-605, October.
    2. Woodbury, Stephen A & Spiegelman, Robert G, 1987. "Bonuses to Workers and Employers to Reduce Unemployment: Randomized Trials in Illinois," American Economic Review, American Economic Association, vol. 77(4), pages 513-530, September.
    3. Paul T. Decker & Christopher J. L'Leary, 1995. "Evaluating Pooled Evidence from the Reemployment Bonus Experiments," Journal of Human Resources, University of Wisconsin Press, vol. 30(3), pages 534-550.
    4. Christopher J. O'Leary & Robert G. Spiegelman & Kenneth J. Kline, 1995. "Do bonus offers shorten unemployment insurance spells? results from the washington experiment," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 14(2), pages 245-269.
    5. Walter Corson & Paul T. Decker & Shari Miller Dunstan & Anne R. Gordon, "undated". "The New Jersey Unemployment Insurance Reemployment Demonstration Project: Final Evaluation Report," Mathematica Policy Research Reports a1188b0b75ad4085ab98457be, Mathematica Policy Research.
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    8. Robert B. Olsen & Marisa Kelso & Paul T. Decker & Daniel H. Klepinger, 2002. "Predicting the Exhaustion of Unemployment Compensation," Mathematica Policy Research Reports d0a9027f813a4bc397fce1190, Mathematica Policy Research.
    9. Bruce D. Meyer, 1995. "Lessons from the U.S. Unemployment Insurance Experiments," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 91-131, March.
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    11. Paul T. Decker, "undated". "Work Incentives and Disincentives," Mathematica Policy Research Reports e09c4ee64359405c8a52e13c4, Mathematica Policy Research.
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    Cited by:

    1. Susan Nelson & David Breneman, 1981. "An equity perspective on community college finance," Public Choice, Springer, vol. 36(3), pages 515-532, January.
    2. Gordon Winston & David Zimmerman, 2004. "Peer Effects in Higher Education," NBER Chapters,in: College Choices: The Economics of Where to Go, When to Go, and How to Pay For It, pages 395-424 National Bureau of Economic Research, Inc.
    3. Michael Rothschild & Lawrence J. White, 1993. "The University in the Marketplace: Some Insights and Some Puzzles," NBER Chapters,in: Studies of Supply and Demand in Higher Education, pages 11-42 National Bureau of Economic Research, Inc.
    4. Balazs Varadi, 2001. "Multiproduct Cost Function Estimation for American Higher Education: Economies of Scale and Scope," IEHAS Discussion Papers 0111, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    5. Birdsall, Nancy, 1996. "Public spending on higher education in developing countries: Too much or too little?," Economics of Education Review, Elsevier, vol. 15(4), pages 407-419, October.
    6. Pablo González, 2002. "Lecciones de la investigación económica sobre el rol del sector privado en educación," Documentos de Trabajo 117, Centro de Economía Aplicada, Universidad de Chile.
    7. Connolly, Laura S., 1997. "Does external funding of academic research crowd out institutional support?," Journal of Public Economics, Elsevier, vol. 64(3), pages 389-406, June.
    8. Robert E. Martin & R. Carter Hill & Melissa S. Waters, 2017. "Baumol and Bowen Cost Effects in Research Universities," Departmental Working Papers 2017-03, Department of Economics, Louisiana State University.
    9. Estelle James & Egon Neuberger, 1981. "The university department as a non-profit labor cooperative," Public Choice, Springer, vol. 36(3), pages 585-612, January.
    10. Turner, Nick, 2010. "Who Benefits From Student Aid? The Economic Incidence of Tax-Based Federal Student Aid," University of California at San Diego, Economics Working Paper Series qt7g0888mj, Department of Economics, UC San Diego.
    11. Dundar, Halil & Lewis, Darrell R., 1995. "Departmental productivity in American universities: Economies of scale and scope," Economics of Education Review, Elsevier, vol. 14(2), pages 119-144, June.
    12. repec:eee:pubeco:v:156:y:2017:i:c:p:170-184 is not listed on IDEAS
    13. Andreas Ortmann, 2001. "Capital Romance: Why Wall Street Fell in Love With Higher Education," Education Economics, Taylor & Francis Journals, vol. 9(3), pages 293-311.

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