Thursday, 22 October 2009

Oddities in the economics of academia

Andrew Leigh reports on work by Andrew Norton suggesting that university funding regimes will have some universities in Australia aiming for fewer domestic students despite the current downturn meaning that the opportunity costs of attending university, for students, are at a low.

Why would universities want fewer students? Well, if the government funding regime sets a quota on student numbers beyond which additional students generate only tuition income for the University, and if tuition income does not cover the marginal costs of educating a student, and if tuition levels are capped so that they cannot be increased to cover the student's marginal costs, that's about what you expect to have happen.

The NZ system is pretty similar.

I've heard numbers thrown around here than an additional domestic student in the College of Business and Economics next year costs the College more money than the student brings in. The tuition income we get from a domestic student is less than the per student overhead tax that we have to pay to the central university administration and we're at our maximum quota overall for the government's subsidy for students. So every additional domestic student costs the College about $300.


  1. I don't know if it's true, but I've heard that post-graduate students make NZ universities more money in government subsidies than undergraduates. If increasing the intake of undergraduates increases the number of prospective post-graduates, mightn't that extra $300 cost per undergraduate be worth it?

    I suppose there are fairly predictable ratios of undergraduate input to post-graduate output, though, and I imagine it takes many extra undergraduates to produce one more post-graduate.

    Any idea on the numbers here?

  2. Grad students do earn a lot more through PBRF. In Econ at least, though, most of our honours students land great jobs at Treasury and Reserve Bank and elsewhere without having to go on for a grad degree, and the ones wanting a grad degree we'll often recommend go to the US anyway, so we've a rather limited pool.

  3. The funding formula for research degree completions is at p. 8 of

    Per grad student funding depends on student level (masters vs PhD), subject area (bench sciences get more than social sciences, mostly because of materials costs), and student ethnicity (Maori and Pacific students earn double the funding of Pakeha/European). According to the TEC documentation, a European completing a PhD in Dentistry would attract funding of $16,000. In Econ, that would be divided by 2.5 as we get a cost weighting of one while Dentistry's at 2.5. All of that's calibrated on 2005 numbers: total amount depends on the total funding available in a year and the total number of graduate students in the whole university system. All of the funding formula weightings tell you what fraction of the overall pool you get.