Reputations Rule in Higher Education Market Competition

November 22, 2010

That’s the view of Robert Martin, emeritus professor of economics at Centre College in an opinion piece in Inside Higher Education.  The piece is a teaser for a book he’s about to publish, The College Cost Disease: Higher Cost and Lower Quality, forthcoming from Edward Elgar, Ltd.

Money quote from the IHE piece:

“Reputations rule in higher education competition, and reputations are a factor only in markets where providers sell “experience goods.” An experience good is any good/service where the consumer does not know quality prior to purchase; he has to “experience” the good before he can judge quality. Quality uncertainty leads consumers to use the provider’s reputation for previous quality produced as an indicator of current quality. In extreme cases, the consumer assumes the higher the cost, the higher the quality. The reader may recognize this as the “Chivas Regal effect” among selective colleges and universities. Notice the perverse incentive this creates. If the institution spends more per student, the public assumes quality is increasing; if the institution cuts cost per student, the public assumes quality is declining. Hence, prudent cost control (which might make it possible to lower prices) lowers academic reputation!”

And this:

“In the end, these are our problems and it is our responsibility to solve them. Denying problems exist betrays our students in at least two ways. First, beyond just teaching value added, we claim critical thinking skills, social responsibility, justice, citizenship, etc. are important parts of what we teach students. How can students take us seriously if we are unwilling to critically evaluate our own behavior and our institutions? Second, by our inaction, we deny students access to college. Uncontrolled rising real costs make it impossible for society to ever fully fund college access.”

Of course it does matter whether real costs of a college education are rising. He sounds pretty sure that they are, but notes that there are dissenters.  We need to know whether the real cost of what it takes to provide an education is rising, and we need to know whether the real net prices charged to students and their parents are rising because the real costs of providing the education are rising or because burdens of paying are just being shifted on to them from other, former payers such as federal and state governments.

He is certainly right, however, that reputations rule in higher education competition.

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About Doug Bennett

Doug Bennett is Emeritus President and Professor of Politics at Earlham College. He has a wife, Ellen, and two sons, Tommy (born 1984) and Robbie (born 2003).
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