Wednesday, January 23, 2008

Biggest Rent Seekers: Rich Liberal Arts Colleges?

By Richard Vedder

Suppose you wanted to run an ultra-high quality liberal arts college for 1,000 students. You hire 125 faculty at an annual cost of $120,000. That allows for class of under 20 with fairly light teaching loads for a highly paid and presumably very good faculty. Then you spent twice as much as that on non-faculty expenses --deans, librarians, custodians, etc. Total per student costs? $45,000. Schools like Williams and Amherest, between tuition and endowment income alone, forgetting alumni gifts and grants, spend vastly more than that --nearly double that, in fact.

Where is all the money going? Over the last generation, salaries of faculty have risen a lot at these schools --vastly more than at the public schools of quality. The non-academic staff has grown faster at these schools as well, and they have more bloated bureaucracies than the typical state school.

As the demand for colleges of prestige have soared, the staffs at these places have taken advantage of it. Donations have soared, and endowment income is often one-third of total spending. So the staff has decided to give themselves the good life.
To be sure, there is a payoff. The probability of becoming famous or recognized in life is vastly higher for Harvard, Yale Princeton and a few Willherst (Amherst/Williams) type schools than at Six Pack U. Indeed, winning entry into these schools suggests a student is 10-20 times more likely to achieve fame later in life (based on analysis we are doing at CCAP you will be hearing a lot more about). Pay $45,000 and go to Harvard or Willherst --or $45,000 and go to a second tier private school (e.g., George Washington U.) --and your chances for success are far,far, greater at Willherst and Harvard. Hence the frenzy to get into Harvard. It is rational, in a sort of irrational way. Stay tuned.

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