Resource Allocation in Public Research Universities (2007)

Resource Allocation in Public Research Universities José L. Santos A study of internal resource allocation in public Research I universities is particularly timely and important as the patterns of expenditures and revenues at public universities, after a period of substantial change, stabilized in 1999. After 1999, a period of new retrenchments ensued as a result of intensified budget cutting that, in some cases, resulted in budget rescissions for some universities in fiscal years 2001–2002 and 2002–2003. An analysis of the revenue streams for public institutions of higher education over the 15 years from 1985 to 1999 reveals a decline in the proportion of current-fund revenue provided from the state from 45.1% to 35.8%, an absolute decrease of 21%. During the same period, tuition and fees rose sharply from 14.6% in 1985 to 18.5% in 1999, an absolute increase of 27% while private gifts, grants, and contracts rose from 3.1% in 1985 to 4.8% in 1999, an absolute increase of 55% (National Center for Education Statistics [NCES], 1993, p. 322; NCES, 1996, p. 4; NCES, 2003, p. 372). In the period between 1986 and 1999, institutional expenditures (measured in 1999 constant dollars, using the Higher Education Price Index [HEPI] deflator) increased by $38 billion, from $103 billion in 1986 to $141 billion in 1999, a 37% increase (inflation adjusted) while government funding increased by $11 billion, from $62 billion in 1986 to $73 billion in 1999, a 17% increase [End Page 125] (inflation adjusted) (NCES, 1993, p. 332; NCES, 1996, pp. 4, 5; NCES, 2003, p. 391; Research Associates of Washington, 2003). In short, government investment in public universities has declined, resulting in institutions' search for new revenue streams led by tuition and fees (Mayhew, Ford, & Hubbard, 1990) and private gifts, grants, and contracts. It is therefore important to explore how this public financing shift plays out in the internal resource allocation function. Internal resource allocation has been studied in a number of different ways. As early as the 1980s, resource allocation became an important research topic because of fiscal volatility and budget crises. Researchers typically studied departments housed in different colleges within universities (Ashar, 1987; Ashar & Shapiro, 1990; Hackman, 1985; Melchiori, 1982; Morgan, 1984). The next decade characterized by university restructuring brought about studies of resource allocation that shifted the emphasis to faculty performance on productivity measures within departments as the unit of analysis (Layzell, 1996; Levin, 1991; Massy, 1996). In the first decade of the 21st century, state and institutional budget crises have led to increased attention to how scarce institutional resources are distributed. The shift from the department to the individual faculty member has omitted some critical perspectives of how departments, rather than individuals, mediate faculty behavior (Volk, Slaughter, & Thomas, 2001). As a result, using the individual faculty member may be inadequate in furthering our understanding of internal resource allocation in the context of constrained institutional resources. Traditionally, studies on internal resource allocation have employed either rational/political or critical/political frameworks. Only one study (Volk, Slaughter, & Thomas, 2001) uses both conceptual frameworks; however, it focuses on only one public research institution. In this study, I build on the work of Volk, Slaughter, and Thomas by focusing on breadth—that is, I examine resource allocation using departments and fields of study at 10 public research universities to explore the returns to teaching and research productivity on departmental earnings between fields of science. My hope is that a focus on departments as key units of analysis will further our understanding of internal resource allocation. The purpose of this study is to conduct an econometric analysis of internal resource allocation. I estimate the production (allocation) function of public research universities by modeling the income-production function of academic departments. The goal is to estimate the relative "rate of return" that universities assign to teaching and research productivity. The allocation function is modeled by estimating a revenue function that is part of the family of functions...