A UTILITY‐MAXIMISING VIEW OF UNIVERSITIES*
| Published date | 01 November 1970 |
| DOI | http://doi.org/10.1111/j.1467-9485.1970.tb00713.x |
| Date | 01 November 1970 |
A UTILITY-MAXIMISING VIEW
OF
UNIVERSITIES*
A.
J.
CULYER
I
INTRODUCTION
The purpose of this paper is to tackle the interesting, if controversial, task
of
developing a purely economic theory
of
universities with minimal reference
to the contributions made by other disciplines. The most fruitful of these
other approaches (as it seems to me) views the university as a kind of club
(it
has a membership) or some other type of collectivity within which common
values are held and common ends are pursued.’ In this context of analysis.
student troubles, for example, stem basically from an erosion of the assump-
tions of the club and the
evolutionarydifficulties
which result when attempts to
accommodate different values and ends are made arising, perhaps, from an in-
creasing democratisation of education. Economists have, on the whole, fought
shy of applying their techniques
of
analysis to the institutions in which most
of them work,2 and one might hazard two possible reasons for this, the first
being that universities are (usually) non-profit institutions, and hence there
is
a
prima
facie
reason for rejecting the applicability of the obvious relevant
model-that of the firm. The second is the belief that universities are ‘norma-
tive
’
institutions to which non-economic models are more appropriately
applied. The case for using non-economic models can easily
be
defended and
it is not the purpose here to dispute it. In order, however, to test the
relative
usefulness of alternative approaches, it seems highly desirable that an econo-
mic model
be
given a fair run for its money. The purpose
of
this paper is.
then,
to
see how much the dismal science can contribute.
If
this paper starts in a manner fairly well disposed towards political and
sociological approaches, the same cannot, however, be said for the attitudes
of many social scientists towards the relevance of economics. An examina-
tion of some of the possible reasons for this may serve as a preliminary
defence of the methodology adopted here.
There appear
to
be three principal objections
to
the use
of
economics in
the analysis of university behaviour, and since each appears
to
be fallacious
*
This paper is based upon one given
to
the 1969 Conference of the Association of
University Teachers
of
Economics.
I
am grateful
to
many colleagues for comment
and discussion, and especially
to
Harry Johnson and Alan Peacock. Since they have
not seen the final version, the burden
of
responsibility must, unfortunately, remain
solely with me.
For
a cogent example of such an analysis see Buchanan (1968).
For
useful exceptions, however, see Southwick (1967: 1969): Alchian (1958:
1968): Barron (1961). These all deal with different aspects of the economics
of
universities.
350
A.
I.
CULYER
to the author, it is proposed to entitle them appropriately. They are
fhe
econontics-iJ.-nierccnary
fallacy:
the
education-is-diflerent fallacy
and
the
fallacy of
the uncongenial assumption.
The first of this fallacious trio states the applicability
of
economic theory
is
(or,
in a prescriptive formulation with which we shall not
be
concerned,
ought to be) restricted to situations involving the accretion and allocation
of
monetarily priced wealth. The traditional postulates of economics do not,
however, imply any such restriction. Economics as the science
of
human
competition for the ownership of scarce goods is not defined by the institu-
tional arrangements adopted by society. Indeed, prediction
of
the sort of
institutions which arise and their consequences is
a
part
of
the mainstream
of
the subject. The existence of an economic good that neither carries an
explicit money price nor can be acquired by explicit monetary exchange there-
fore cannot
a
priori
be ruled a non-economic problem.
The second fallacy asserts that the act of getting oneself educated is not
the acquisition of an economic good and, by implication, that there exist
no rationing
or
investment problems in education and that education does
not use up scarce resources. Thus stated. the fallacy is self-evident. The
product
‘
education
’,
which
is
produced
in the same sense that other services
are produced, is, of course, different from other products, and has ‘many
intriguing dimensions. It is highly differentiated, its acquisition is usually
a
simultaneous act of both consumption and investment, it is frequently
alleged
to
exhibit substantial net marginal external benefits (Pareto-relevant
externalities), it
is
often compulsorily consumed, and the methods by which
it
is allocated have many unusual features. While these (and other) charac-
teristics mark education
out
as a product different from any other they are,
nonetheless, descriptive attributes of an economic good. In a fundamental
sense, then, education is not different
(it
is an economic good) but
in
another
sense it is (it is not the same thing as other economic goods).
The third fallacy is less
gross
but no less mischievous. The fallacy of the
uncongenial assumption asserts that
it
is preferable to adopt the methodology
of
a
discipline other than economics in the study of social problems involving
competition between humans because (e.g.) economics assumes
‘
rational
’
behaviour. The fallaciousness
of
this assertion lies in its use
a priori
to
dis-
miss as invalid any contribution economics may make to understanding social
conflict. By careful assessment of the empirical validity (somehow defined)
of alternative theories and the validity of their application (i.e. that the
theories were applied under conditions for which the assumptions yield veri-
fiable hypotheses) it becomes possible
to
accept
or
reject alternative ap-
proaches to the same set of (often stylised) data. This is possible, however,
only when reasonably fully developed hypotheses are ranked alongside one
another.
A
major task
of
this paper, therefore, will be
to
derive as
wide
a
range of testable implications as possible. It turns out that the simple model
employed here has an extraordinarily rich set of implications, which,
if
valid, testify
to
the usefulness
of
the economic approach.
It
is, furthermore,
based
on
assumptions whose only justification is that they appear to permit
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