Working Paper: NBER ID: w18626
Authors: Caroline M. Hoxby
Abstract: I propose a positive model of the university that generates many apparently peculiar features of universities such as endowments and tuition subsidies. The model proposes a specific objective function: a university maximizes its contribution to the intellectual capital of society, valued at social returns. The objective function is enforced within the model-that is, it leads to actions that reinforce the initial selection of the objective function. Endowments also arise naturally within the model: they are a necessary feature of certain universities, not an accident. The model has important implications for the decisions that universities should make on many fronts, but I focus on the implications for financial decisions, especially universities' endowment spending rules and portfolio allocations. The model is designed to explain America's great private research universities and very selective liberal arts colleges and-with modest adaptations-institutions like America's and Britain's great public research universities. Indeed, a ancillary benefit of the model is that it provides a justification for existence of the aforementioned institutions by assigning them a unique role in the creation of the world's intellectual capital.
Keywords: No keywords provided
JEL Codes: G11; I22; I23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| universities' objective function (O) (L21) | actions (A) (C57) |
| actions (A) (C57) | universities' objective function (O) (L21) |
| universities' objective function (O) (L21) | endowments (E) (I25) |
| investments in advanced human capital (H) (J24) | endowments (E) (I25) |
| investments in new knowledge (K) (E22) | endowments (E) (I25) |
| investments in advanced human capital (H) (J24) | universities' objective function (O) (L21) |
| investments in new knowledge (K) (E22) | universities' objective function (O) (L21) |