The Structure of Higher Education

Clair Smith

Advisor: Donald J. Boudreaux

Committee Members: Richard E. Wagner, Todd Zywicki

Research Hall, Room 91
November 09, 2009, 07:00 PM to 07:00 PM


Higher education in the U.S. is provided by an interesting mix of public, private non-profit, and for-profit institutions. The for-profit educational firm serves the residual claimant owners and has the greatest incentive for efficient operation. The public and private non-profit schools have less efficient incentives, but benefit from charitable donations and appropriations. While the for-profit schools maximize profit, the non-profit schools may seek to maximize an assortment of goals, most of which are incorporated into the concept of reputation. Smaller schools with a common mission or vision may be better able to reduce the inefficiencies of non-profit management than the large universities, which have more in common with models of government bureaucracy. Benefactors of schools with a specific and unique mission may be more concerned about furthering that particular cause or purpose than efficiency in delivering educational services. Most analyses of education treat the institution as a centrally planned and controlled entity. Hayek's alternative paradigm, the emergent order, may better explain the way large universities and state educational systems actually function. The lens of spontaneous order is applied to several puzzles of the university in search of new insights on tenure, state systems, and the segregation of athletic revenues.