Bowen states that cost per student results from three societal decisions that reflect the combined influence of the many persons and public authorities who control the flow of funds to higher education. Institutional Determinants of Cost Bowen points out that colleges and universities have no strong incentive to cut costs in quest of profit because they do not seek profits. The unit cost of operating colleges or universities is set by the amount of money institutions are able to raise. When resources are increased, the institutions find ways to use the new funds and the cost per unit goes up and when funds decrease, institutions protest, but in the end they accept the inevitable, and the unit cost goes down. Bowen calls this set of generalizations revenue theory of costs .
Educators use needs as a strategy to argue for more funding from legislators and donors.
They obverse the needs argument as the efficiency argument. Using new technology is an example of how the efficiency argument has been used recently in higher education. The strategy is to ask for more revenue to purchase technology with goals to decrease costs, but what often happens is that the savings would simply be expended elsewhere in the institution and no net savings would occur. Therefore, Bowen argues that unit costs are determined not by changes in efficiency, but by changes in revenues. Bowen concludes that the revenue theory of educational cost is subject to an important qualification.