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Measuring Baumol and Bowen Effects in Public Research Universities

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We estimate three models of cost per student using data from Carnegie I and II public research universities. There are 841 usable observations covering the period from 1987 to 2008. We find that staffing ratios are individually and collectively significant in each model. Further, we find evidence that shared governance lowers cost and that the optimal staffing ratio is approximately three tenure track faculty members for every one full time administrator. Costs are higher if the ratio is higher or lower than three to one. As of 2008 the number of full time administrators is almost double the number of tenure track faculty. Using the differential method and the coefficients into Baumol and Bowen effects. This analysis reveals that for every $1 in Baumol cost effects there are over $2 in Bowen cost effects. Taken together, these results suggest two thirds of the real cost changes between 1987 and 2008 are due to weak shared governance and serious agency problems among administrators and boards.

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  • R. Carter Hill & Robert Martin, 2012. "Measuring Baumol and Bowen Effects in Public Research Universities," Departmental Working Papers 2012-05, Department of Economics, Louisiana State University.
    • Handle: RePEc:lsu:lsuwpp:2012-05
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    File URL: https://www.lsu.edu/business/economics/files/workingpapers/pap12_05.pdf
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    1. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    2. A. Colin Cameron & Pravin K. Trivedi, 2010. "Microeconometrics Using Stata, Revised Edition," Stata Press books, StataCorp LP, number musr, March.
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    Cited by:

    1. Robert Martin, 2013. "Do Colleges and Universities "Manage" Their Financial Reporting?," Challenge, Taylor & Francis Journals, vol. 56(5), pages 85-99.
    2. John Bailey Jones & Fang Yang, 2016. "Skill-Biased Technical Change and the Cost of Higher Education," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 621-662.
    3. José Joaquín Brunner, 2013. "The Rationale for Higher Education Investment in Ibero-America," OECD Development Centre Working Papers 319, OECD Publishing.
    4. R. Carter Hill & Robert Martin, 2013. "Involuntary and Voluntary Cost Increases in Private Research Universities," Departmental Working Papers 2013-05, Department of Economics, Louisiana State University.

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