The national government established and funds the postsecondary education system and exercises a great deal of influence over individual institutions. In the continental model the power of the state is combined with the strong authority of senior faculty who hold the position power of a chair. In the United States, authority of institutional trustees, administrators, and faculty have more influence than the state. The state influence is in terms of supervising the higher education system only in regards to assuring academic quality and maintaining a certain level of accountability. Policy Instruments States have two basic policy tools they can use to influence higher education within their state.
Carrots often work better than sticks.
An example of regulation by incentive has been the growth in performance funding. Many states like South Dakota use an incentive funding model that if an institution's performance is what the state would like or what the state deems as its priorities than the institution will receive additional funds. The Economics of Cost, Price, and Quality in U.S. Higher Education McPherson and Winston provide a comprehensive view of the economics of higher education. Their article is more comprehensive than we have time to explore. Financing Higher Education would provide you with more in depth understanding of financial issues in higher education and will be offered again in the Fall 2002.