Some feedback from UC colleagues,
following Part II
from Professor X, in business
Charlie: In any enterprise with large fixed costs (libraries,
computers, administration, landscaping, plumbing maintenance, etc.),
(some) users will pay more than marginal cost. In the case of
federal and other research grants to UC, this is made explicit in
charges for "overhead". When you go to the supermarket to buy a
quart of milk, you are charged more than the marginal cost to pay for
the store's rent, the light bill, the accountant, etc. The
marginal cost of the milk would essentially be only the wholesale price.
For many university departments, the marginal cost of an additional
student is likely to be well *below* tuition at UC. For example,
what does it cost to stick one more student in the lecture hall of the
history dept.? On the other hand, it probably costs a lot more to
have one more film student. It is likely that when UC denied
entrance to some undergrads a few years back, ostensibly because of the
budget, it actually worsened the budget situation. If there was a
justification, it was to have some bargaining leverage with the
state. I don't think any real leverage was gained but that was
Nice to hear from you. I don't know how much of my analysis you
have read, so let me say that I did not calculate "marginal
cost." I looked at the university's total expenditure for the "product
line" identifiable as undergraduate education (as separable from other
product lines) and divided that by the total number of customers
(undergraduate students). This is average cost, not marginal cost. All
of those overhead expenses you mention are included in my calculation.
There is certainly room for critiquing how I did that calculation, and
I would very much like to hear from economists about whether or not I
have properly used the basic principles of ABC, since this is the most
contentious point: how to (or can one?) separate faculty research and
graduate education from undergraduate education.
What is your view on this?
Charlie: You would need to look very closely at the "product lines" to
see how they are separating one line from another if it's average
cost. For example, how much library overhead is being allocating
to undergrads, grads, faculty research, public access, etc.? For
that matter, I am not aware of anyone ever finding out how much of my
teaching time is allocated between grads and undergrads. (I teach
some courses that have both.) There is not much incentive for the
university to pay a great deal of attention to this. Overhead
charged on grants is essentially a UC negotiation with the feds, not
some detailed measurement.
Let me answer your concerns.
Some years ago the UC administration, with faculty cooperation, hired a
social science research firm to conduct a Faculty Time Use Survey of
the UC faculty. This provides an authoritative answer to how one
may most logically divide faculty work-time among research and
teaching, with further data leading to reliable separation of that
teaching work between undergrad and grad courses. This allows the
Activity Based Costing (ABC) approach I used in my calculation. (The
longer paper on my website describes all this in some detail. Be sure
to see the appendices also.) The "incentive" for the
administration doing that survey was noise from Sacramento about
faculty spending too much time at research and not enough time at
teaching. So I expect that the survey results are biased to
overemphasize teaching; nevertheless, I have used their results at face
As for library cost separation, I used an estimate 50-50 separation
based on information from the UC budget that 57% of this budget item
goes to acquisitions (mostly research journals) and 38% to
reference-circulation (serving users in person).
I expect I am being overly generous in both of those
approaches. I have asked for detailed discussions with UC
officials to sharpen up the analysis. (They don't respond. I wonder
Please put on your professional hat and have a good look at my long
and then tell me how it stands up to economists' scrutiny. Constructive
criticism is most valuable.
from Professor Y, in science
Charlie - you never cease to be stimulating. I think your analogy with
luxury cars is probably best to use in this case. If someone wants the
best deal as you seem to be defining it (a purely undergraduate
education by people purely engaged in providing it), then choosing a
major research university is like picking a Lexus instead of a Corolla.
The latter provides perfectly comfortable and reliable transportation
at a fraction of the cost of the former. My point is that people do
have these choices, and I believe they know what they are doing and
getting. There are a great many public and private undergraduate
institutions, and I suspect the teaching is superior on average at many
of them. The fact that students clamor to get into R1 universities
suggests that they perceive added value not related to undergraduate
education (prestige, name-recognition, eased paths to jobs or graduate
school, research experience, strong peer groups, etc.).
Unless you feel that offering the "budget" and "luxury" choices is
fundamentally unreasonable, I'd suggest that you move on to a more
important topic. The financing of R1s is quite a tangle (the use of
overhead from grants is a fascinating and murky topic), but I don't
think that implying that the R1s are committing fraud is constructive.
It does the already strained research capacity of the nation no
particular good to attack one of its main pillars, and as a research
scientist yourself I'm a bit surprised you find this the best use of
your time. Were you to have your way, R1s would either shrink or become
even more expensive. I work on faculty and student diversity; maybe
that is an issue your considerable analysis talents could more
profitably be turned to. Access to choice is a better goal than
Thanks for your response; I appreciate feedback from colleagues.
You talk about motives for my recent research (on costs at research
universities) and I'll be glad to answer. In my longer paper (http://socrates.berkeley.edu/~schwrtz/UndergradCost.html)
I talk a bit (in Sections VI and VII) about the larger political/moral
issues. I am not out to make life harder for the research
enterprise; I am out to try to preserve the principle of public access
to quality higher education, independent of students' financial
status. I think that is something you also care about.
I believe that the trend of increasing fees at UC (and other
public universities of quality) will have (is already having) an effect
of skewing student populations toward those from more affluent
families. At one point I ask the question: Is there any ethical
or political line that might be drawn to limit that socially regressive
trend? And my proposed answer is: that undergraduate students
should not be charged more than the actual cost of the education that
is provided to them. Maybe others will disagree with this concept; I
only ask for an honest open debate based upon honest accounting of
where the money now goes.
You say, "My point is that people do have these choices, and I believe
they know what they are doing and getting." I agree that people
who spend enormous tuitions to send their kids to exclusive private
schools do know what they are doing (buying a seat on the super elite
train.) But people who have to scrimp and sweat to send their
kids to UC (or have to cancel this option because of the cost) are not
being told the truth about what those fees are being used for.
Please send me you reaction to this.
[Here is Y’s next email, with my responses interspersed in
Charlie - I don't think you are giving the people enough credit for
knowing what they are doing. This state has excellent options in the
State University and Community College systems for those who wish to
choose purely undergraduate options. Indeed, there is a disturbing
trend at the State Universities to encourage more research, and think
about opening more PhD programs. That I do think is a mistake, because
then they will end up being too much like UC and narrow the choice.
People clamor to get into UC BECAUSE it is UC: a highly-regarded
research and graduate institution (mostly for the reasons I gave last
time: they think they will accrue advantages beyond classroom learning).
you suggest that students/parents would choose to select CSU over UC
because they didn't want to bother with what UC has to offer (the
research mystique)? I disagree. Students are selected for
UC on the basis of their high school records (there is some elitism in
this whole structure, but I can accept that.) I agree that
students who get into UC do get something better than those who go to
CSU: primarily a more strict course curriculum and a more stimulating
set of student peers (and, yes, also the presumed benefits of a more
pedigreed certificate). Does our research activity really provide
some tangible added benefit to our undergraduate educational
program? I think very little indeed. (Graduate programs are an
entirely different matter.)
I share your concern about rising fees, but think that the solution is
that the State should provide more support to UC to keep fees low, not
that we should attempt to separate costs for UG and Grad education
(which I agree with many others would be a somewhat misleading
procedure). Now I agree with you that the fees do not go to pay us
purely for what we are hired for, which really, as far as the State
pretends, is just for teaching. On the other hand, most of the UC
budget doesn't even come from State funds, and a good bit of research
overhead ends up in the State and UC general funds. If the people want
(as they seem to) a first-class University as part of their higher ed
system, they should be more willing to pay for it, and they should not
do so by "user fees" but rather by general state taxes.
also would like to see the public treasury provide more money for
education - at all levels. That approach is what all the
establishment folks in higher ed seek: more money. Good luck to
them. My contribution is to say that a bit more honesty on our
part - about how we spend the money we now get - is not just a good
thing abstractly (honesty is good), but may also help in bringing about
a better relation between taxpayers and our institutions. Those
scandals about UC exec pay should not be regarded as mere "UC bashing",
but a real failing that we ought to get fixed. Public confidence
in what we do is absolutely essential; and it needs to be real, not
I think we do agree on goals here, but I just think your efforts on
this particular aspect are not to the crucial point, and will have a
negative effect on the overall education of Californians. It is too
easy to get distracted with the arcana of University funding, and
ignore the larger issue of public funding of public higher education.
I think it is a two-way street.
If we (at UC) can learn to be more honest and more decent in how we
spend public money, then the public is more likely to support us. (I am
sure there are plenty of sophisticated people around the university who
would consider this statement of mine naive. How do you react?)
There's been enough nonsense (along with some sense) about the
"bonuses" paid to faculty and administrators. Too much UC bashing at
once will not be in the interests of the public (and certainly not in
UC's interest) in the long run.