Janet Rose Posted: Dec 15, 2006 11:51 AM >Haim, for someone who is offering advice about >economics, here are a few elementary pointers about the >subject. First, profit-maximizing behavior does not >occur, for example, where government regulates prices >or profits.
Janet, I am not advising anyone about anything, and I said nothing about profits. While universities, like other "non-profit" organizations, have a different set of incentives, they are, never-the-less, greatly incentivized to aggressively raise prices.
Universities, and education providers generally, have been raising their prices at a rate much faster than inflation, for several decades. Clearly, something other than costs is driving their prices higher. And, if you care to speculate on what forces are moderating their demands, other than the willingness and the ability of their "customers" to pay, I would love to hear it.
In fact, not only have universities been raising prices aggressively, but they aggressively and shamelessly skim the consumer surplus. I cannot think of another major institution that can do that.
>Your claim that universities are like "shoe stores"
Please, let's not get carried away by shoe stores. It is just a metaphor. I think we all understand that universities are not shoe stores. But. Shoe stores will charge what the traffic will bear, and so will universities. End of metaphor. Their motivations for raising prices may, or may not, be different but raise prices they surely will.
>...administered prices, such as tuition, are >politically influenced.
What do you mean by "administered prices"? While governments are free to subsidize students (via scholarships and guaranteed loans) at whatever level they like, private universities are free to charge whatever they like. Each family then decides if the difference is something they are able and willing to cover.
>There are additional confusions on your part, Haim. You >claim that because universities have antiquated >accounting systems and do not know how much their >administrative costs are, they cannot complain about >federal grants' being insufficient to cover >administrative costs. Yet such complaints appear in the >Chronicle of Higher Education.
Knowing that you are running a deficit in your general fund is not the same thing as knowing your costs.
>As far as knowledge of cost accounting, a major >overhaul of accounting methodologies would NOT >constitute an insurmountable challenge because >development of accounting standards that could be >applied to universities has ALREADY BEEN largely >developed by the private sector.
Sorry to be blunt, but this is another straw man (profits being the first). I said nothing about standards. I do not believe there are any important problems with standards. Lots of people know how to do cost accounting, it just happens that few of them are at universities.
>...I refer you to the work of Robert Anthony, formerly >of Harvard Business School, who has written extensively >about why private and public sector accounting should >not be different.
Yes, but they are.
>To cap off your education, Haim, I would suggest to you >that I am Professor Langbert's former student...Perhaps >you can reduce your envy of Langbert's achievements a >bit and stick to mathematics, where hopefully you do a >competent job.
Thank you for the education. And I hope, if there are future interchanges between us, that you can leave off the personal attacks and pay closer attention to the specifics of the arguments actually made, rather than busily constructing straw men to knock down.