A NEW APPROACH TO ANALYZING UNIVERSITY PRESTIGE AND INTERNAL RESOURCE ALLOCATION: Geometric Interpretations and Implications

Research & Occasional Paper Series: CSHE.7. 12 UNIVERSITY OF CALIFORNIA, BERKELEY http://cshe.berkeley. edu/ A NEW APPROACH TO ANALYZING UNIVERSITY PRESTIGE AND INTERNAL RESOURCE ALLOCATION: Geometric Interpretations and Implications June 2012 Yasumi Abe and Satoshi P. Watanabe * Research Institute for Higher Education Hiroshima University, Japan Copyright 2012 Yasumi Abe and Satoshi Patten Watanabe All rights reserved. ABSTRACT The content of this paper is based solely on the original study reported in Abe and Watanabe (2012a) in which the authors develop a structured and innovative theory of optimal resource allocation and prestige maximization for an institution of higher education. Although the study provides a sound diagnostic framework and unambiguous results, the paper requires relatively advanced knowledge of mathematics and microeconomic theory, which presents an unattractive feature for students and researchers in academic disciplines that do not necessarily incorporate such analytical methodologies. The primary objective of this paper is placed on presenting some of the theoretical findings demonstrated in Abe and Watanabe (2012a) and the significance of their implications, without sacrificing the original intent of the study, to an audience of non-mathematical users. In doing so, particular emphasis is placed on geometric interpretations and implications rather than reiterating the results with heavy reliance on specialized knowledge of mathematics and economics. Thus, this paper is designed with the aim of conveying informative insights and enhancing solid understanding of the new analytical approach proposed by the authors to a broader audience of students and scholars whose research interests cover the cost effectiveness in financing higher education institutions. Growing literature, both academic and nonacademic, on university prestige and rankings exists in sheer reflection of the non-negligible impacts of currently influential worldwide rankings on multiple aspects of today’s institutional management and strategy. The scholarly contributions in the literature which has modestly grown over the last few decades, perhaps at a slower rate than the attention paid by the nonacademic and external stakeholders, may generally be categorized into two types of intellectual works. The first group of studies empirically examine the determinants of university rankings or prestige with applications of statistical or econometric methods to existing micro datasets (Brewer et al., 2001; Melguizo and Strober, 2007; Cyrenne and Grant, 2009). The second group typically employs game theoretic approaches and examines the predicted outcomes of strategic actions presumably made by universities and colleges in pursuit of gaining larger market shares in today’s multifaceted industry of higher education (Dearden et al., 2008; Del Rey, 2001; Vanhaecht and Pauwels, 2005). The industry of higher education has been formulated into analysis, particularly by education economists, as a marketplace where individual colleges and universities attempt to maximize institutional prestige or reputation as a result of, or in a more extreme and restrictive sense, in exchange for, provision of multiple products and services such as student instruction, research outputs, as well as community services for their stakeholders which include students, alumni, donors, communities, and governments (Baumol et al., 1982; Breneman, 1976; Brewer et al., 2001; Cohn et al., 1989; Cyrenne and Grant, 2009; Del Rey, 2001; James, 1990; Massy, 1996; Melguizo and Strober, 2007). Despite this vital presumption that every institution of higher education is naturally a prestige * Yasumi Abe is Research Fellow and Satoshi P. Watanabe is Professor, both at the Research Institute for Higher Education, Hiroshima University, Japan. All the results discussed in this paper are based on the original study by Abe and Watanabe (2012a) entitled “A Theory of Optimal Resource Allocation and Prestige Maximization of Universities”, which was completed while Watanabe was a visiting scholar at the Center for Studies in Higher Education, University of California, Berkeley in 2011-2012 years. We are grateful to colleagues at CSHE and Jesse Rothstein at Economics Department for valuable comments and discussions on earlier drafts, which at inception consisted of vaguely conceptualized ideas. We would like to express sincere gratitude for all the encouragement and generous resources provided by CSHE and UC Berkeley. A copy of the original paper (Abe and Watanabe, 2012a) may be obtained upon request from Abe (yasumi@hiroshima-u.ac.jp) or Watanabe (sw259@hiroshima-u.ac.jp).